Correlation Between Shanghai Electric and Eaton PLC

Can any of the company-specific risk be diversified away by investing in both Shanghai Electric 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 Shanghai Electric and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shanghai Electric Group and Eaton PLC, you can compare the effects of market volatilities on Shanghai Electric 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 Shanghai Electric with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shanghai Electric and Eaton PLC.

Diversification Opportunities for Shanghai Electric and Eaton PLC

0.81

Correlation Coefficient

Shanghai Electric  Eaton PLC

Very poor diversification

The 3 months correlation between Shanghai and Eaton is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Shanghai Electric Group and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Shanghai Electric 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 Shanghai Electric Group 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 Shanghai Electric i.e., Shanghai Electric and Eaton PLC go up and down completely randomly.

Pair Corralation between Shanghai Electric and Eaton PLC

Assuming the 90 days horizon Shanghai Electric Group is expected to generate 7.68 times more return on investment than Eaton PLC. However, Shanghai Electric is 7.68 times more volatile than Eaton PLC. It trades about 0.17 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.32 per unit of risk. If you would invest  565.00  in Shanghai Electric Group on September 5, 2024 and sell it today you would earn a total of  240.00  from holding Shanghai Electric Group or generate 42.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Shanghai Electric Group  vs.  Eaton PLC

Shanghai Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shanghai Electric Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Shanghai Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Eaton PLC

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shanghai Electric and Eaton PLC

The main advantage of trading using opposite Shanghai Electric and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shanghai Electric 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 Shanghai Electric Group 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.