Correlation Between EMCOR and Park Ohio

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

By analyzing existing cross correlation between EMCOR Group and Park Ohio Holdings, you can compare the effects of market volatilities on EMCOR and Park Ohio 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 Park Ohio. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMCOR and Park Ohio.

Diversification Opportunities for EMCOR and Park Ohio

0.83

Correlation Coefficient

EMCOR  Park Ohio

Very poor diversification

The 3 months correlation between EMCOR and Park is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Park Ohio Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Ohio Holdings 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 Park Ohio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Ohio Holdings has no effect on the direction of EMCOR i.e., EMCOR and Park Ohio go up and down completely randomly.

Pair Corralation between EMCOR and Park Ohio

Considering the 90-day investment horizon EMCOR Group is expected to generate 0.67 times more return on investment than Park Ohio. However, EMCOR Group is 1.5 times less risky than Park Ohio. It trades about 0.1 of its potential returns per unit of risk. Park Ohio Holdings is currently generating about -0.01 per unit of risk. If you would invest  42,981  in EMCOR Group on September 19, 2024 and sell it today you would earn a total of  4,709  from holding EMCOR Group or generate 10.96% return on investment over 90 days.

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

EMCOR Group  vs.  Park Ohio Holdings

EMCOR Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, EMCOR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Park Ohio Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Ohio Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Park Ohio is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with EMCOR and Park Ohio

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

The idea behind EMCOR Group and Park Ohio Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.