Correlation Between EMCOR and Summit Materials

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

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

Diversification Opportunities for EMCOR and Summit Materials

0.87

Correlation Coefficient

EMCOR  Summit Materials

Very poor diversification

The 3 months correlation between EMCOR and Summit is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of EMCOR i.e., EMCOR and Summit Materials go up and down completely randomly.

Pair Corralation between EMCOR and Summit Materials

Considering the 90-day investment horizon EMCOR is expected to generate 1.3 times less return on investment than Summit Materials. But when comparing it to its historical volatility, EMCOR Group is 1.0 times less risky than Summit Materials. It trades about 0.09 of its potential returns per unit of risk. Summit Materials is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,749  in Summit Materials on September 14, 2024 and sell it today you would earn a total of  1,333  from holding Summit Materials or generate 35.56% 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.  Summit Materials

EMCOR Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, EMCOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Summit Materials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EMCOR and Summit Materials

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

The idea behind EMCOR Group and Summit Materials 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.