Correlation Between Amazon and Emerson Electric

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

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

Diversification Opportunities for Amazon and Emerson Electric

0.78

Correlation Coefficient

Amazon  Emerson Electric

Poor diversification

The 3 months correlation between Amazon and Emerson is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Amazon 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 Amazon Inc are associated (or correlated) with Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of Amazon i.e., Amazon and Emerson Electric go up and down completely randomly.

Pair Corralation between Amazon and Emerson Electric

Assuming the 90 days trading horizon Amazon Inc is expected to generate 29.25 times more return on investment than Emerson Electric. However, Amazon is 29.25 times more volatile than Emerson Electric Co. It trades about 0.19 of its potential returns per unit of risk. Emerson Electric Co is currently generating about 0.13 per unit of risk. If you would invest  370,525  in Amazon Inc on September 27, 2024 and sell it today you would earn a total of  90,175  from holding Amazon Inc or generate 24.34% return on investment over 90 days.

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

Amazon Inc  vs.  Emerson Electric Co

Amazon Inc

Risk-Adjusted Performance

14 of 100

Good

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

Emerson Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Emerson Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Amazon and Emerson Electric

The main advantage of trading using opposite Amazon and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Emerson Electric 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 Emerson Electric will offset losses from the drop in Emerson Electric's long position.

The idea behind Amazon Inc and Emerson Electric Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.