Correlation Between EMCOR and Emerson Electric

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

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

Diversification Opportunities for EMCOR and Emerson Electric

0.9

Correlation Coefficient

EMCOR  Emerson Electric

Almost no diversification

The 3 months correlation between EMCOR and Emerson is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and EMCOR 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 EMCOR Group 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 EMCOR i.e., EMCOR and Emerson Electric go up and down completely randomly.

Pair Corralation between EMCOR and Emerson Electric

Considering the 90-day investment horizon EMCOR Group is expected to generate 1.2 times more return on investment than Emerson Electric. However, EMCOR is 1.2 times more volatile than Emerson Electric. It trades about 0.13 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.05 per unit of risk. If you would invest  14,407  in EMCOR Group on September 30, 2024 and sell it today you would earn a total of  31,531  from holding EMCOR Group or generate 218.86% return on investment over 90 days.

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

EMCOR Group  vs.  Emerson Electric

EMCOR Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, EMCOR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Emerson Electric

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with EMCOR and Emerson Electric

The main advantage of trading using opposite EMCOR and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMCOR 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 EMCOR Group and Emerson Electric 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.