Correlation Between Emerson Electric and IShares Global

Can any of the company-specific risk be diversified away by investing in both Emerson Electric and IShares Global 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 IShares Global 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 iShares Global Timber, you can compare the effects of market volatilities on Emerson Electric and IShares Global 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 IShares Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and IShares Global.

Diversification Opportunities for Emerson Electric and IShares Global

0.4

Correlation Coefficient

Emerson Electric  IShares Global

Very weak diversification

The 3 months correlation between Emerson and IShares is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric Co and iShares Global Timber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Global Timber 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 IShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Global Timber has no effect on the direction of Emerson Electric i.e., Emerson Electric and IShares Global go up and down completely randomly.

Pair Corralation between Emerson Electric and IShares Global

Assuming the 90 days trading horizon Emerson Electric Co is expected to generate 11.21 times more return on investment than IShares Global. However, Emerson Electric is 11.21 times more volatile than iShares Global Timber. It trades about 0.14 of its potential returns per unit of risk. iShares Global Timber is currently generating about 0.08 per unit of risk. If you would invest  146,072  in Emerson Electric Co on September 27, 2024 and sell it today you would earn a total of  58,128  from holding Emerson Electric Co or generate 39.79% return on investment over 90 days.

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

Emerson Electric Co  vs.  iShares Global Timber

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.

iShares Global Timber

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Emerson Electric and IShares Global

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

The idea behind Emerson Electric Co and iShares Global Timber 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.