Correlation Between Emerson Electric and Amazon

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

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

Diversification Opportunities for Emerson Electric and Amazon

0.79

Correlation Coefficient

Emerson Electric  Amazon

Poor diversification

The 3 months correlation between Emerson and Amazon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric Co and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Emerson Electric 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 Emerson Electric Co are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Emerson Electric i.e., Emerson Electric and Amazon go up and down completely randomly.

Pair Corralation between Emerson Electric and Amazon

Assuming the 90 days trading horizon Emerson Electric is expected to generate 42.67 times less return on investment than Amazon. But when comparing it to its historical volatility, Emerson Electric Co is 29.02 times less risky than Amazon. It trades about 0.13 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  370,525  in Amazon Inc on September 27, 2024 and sell it today you would earn a total of  90,275  from holding Amazon Inc or generate 24.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Emerson Electric Co  vs.  Amazon Inc

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.

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.

Pair Trading with Emerson Electric and Amazon

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

The idea behind Emerson Electric Co and Amazon Inc 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.