Correlation Between Nidec and Eaton PLC

Can any of the company-specific risk be diversified away by investing in both Nidec and Eaton PLC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Nidec and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nidec and Eaton PLC, you can compare the effects of market volatilities on Nidec and Eaton PLC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Nidec with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nidec and Eaton PLC.

Diversification Opportunities for Nidec and Eaton PLC

-0.34

Correlation Coefficient

Nidec  Eaton PLC

Very good diversification

The 3 months correlation between Nidec and Eaton is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Nidec and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Nidec is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Nidec are associated (or correlated) with Eaton PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of Nidec i.e., Nidec and Eaton PLC go up and down completely randomly.

Pair Corralation between Nidec and Eaton PLC

Assuming the 90 days horizon Nidec is expected to generate 12.61 times more return on investment than Eaton PLC. However, Nidec is 12.61 times more volatile than Eaton PLC. It trades about 0.08 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.1 per unit of risk. If you would invest  2,451  in Nidec on September 12, 2024 and sell it today you would lose (605.00) from holding Nidec or give up 24.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Nidec  vs.  Eaton PLC

Nidec

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nidec are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nidec reported solid returns over the last few months and may actually be approaching a breakup point.

Eaton PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nidec and Eaton PLC

The main advantage of trading using opposite Nidec and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nidec position performs unexpectedly, Eaton PLC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Eaton PLC will offset losses from the drop in Eaton PLC's long position.

The idea behind Nidec and Eaton PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Transaction History module to view history of all your transactions and understand their impact on performance.