Correlation Between Crane and Eaton PLC

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

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

Diversification Opportunities for Crane and Eaton PLC

0.85

Correlation Coefficient

Crane  Eaton PLC

Very poor diversification

The 3 months correlation between Crane and Eaton is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Crane 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 Crane Company 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 Crane i.e., Crane and Eaton PLC go up and down completely randomly.

Pair Corralation between Crane and Eaton PLC

Allowing for the 90-day total investment horizon Crane Company is expected to generate 1.06 times more return on investment than Eaton PLC. However, Crane is 1.06 times more volatile than Eaton PLC. It trades about 0.14 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.02 per unit of risk. If you would invest  13,550  in Crane Company on February 4, 2024 and sell it today you would earn a total of  745.00  from holding Crane Company or generate 5.5% return on investment over 90 days.

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

Crane Company  vs.  Eaton PLC

Crane Company

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

Eaton PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Crane and Eaton PLC

The main advantage of trading using opposite Crane and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crane 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 Crane Company 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.