Correlation Between Vestas Wind and Eaton PLC

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

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

Diversification Opportunities for Vestas Wind and Eaton PLC

-0.89

Correlation Coefficient

Vestas Wind  Eaton PLC

Pay attention - limited upside

The 3 months correlation between Vestas and Eaton is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Vestas Wind 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 Vestas Wind Systems 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 Vestas Wind i.e., Vestas Wind and Eaton PLC go up and down completely randomly.

Pair Corralation between Vestas Wind and Eaton PLC

Assuming the 90 days horizon Vestas Wind Systems is expected to under-perform the Eaton PLC. In addition to that, Vestas Wind is 1.58 times more volatile than Eaton PLC. It trades about -0.04 of its total potential returns per unit of risk. Eaton PLC is currently generating about 0.1 per unit of volatility. If you would invest  21,226  in Eaton PLC on September 12, 2024 and sell it today you would earn a total of  14,623  from holding Eaton PLC or generate 68.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.7%
Values	Daily Returns

Vestas Wind Systems  vs.  Eaton PLC

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Vestas Wind and Eaton PLC

The main advantage of trading using opposite Vestas Wind and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vestas Wind 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 Vestas Wind Systems 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.