Correlation Between Emerson Electric and Enerpac Tool

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

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

Diversification Opportunities for Emerson Electric and Enerpac Tool

0.93

Correlation Coefficient

Emerson Electric  Enerpac Tool

Almost no diversification

The 3 months correlation between Emerson and Enerpac is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Enerpac Tool Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enerpac Tool Group 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 are associated (or correlated) with Enerpac Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enerpac Tool Group has no effect on the direction of Emerson Electric i.e., Emerson Electric and Enerpac Tool go up and down completely randomly.

Pair Corralation between Emerson Electric and Enerpac Tool

Considering the 90-day investment horizon Emerson Electric is expected to generate 1.0 times more return on investment than Enerpac Tool. However, Emerson Electric is 1.0 times less risky than Enerpac Tool. It trades about 0.21 of its potential returns per unit of risk. Enerpac Tool Group is currently generating about 0.15 per unit of risk. If you would invest  10,496  in Emerson Electric on August 30, 2024 and sell it today you would earn a total of  2,763  from holding Emerson Electric or generate 26.32% return on investment over 90 days.

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

Emerson Electric  vs.  Enerpac Tool Group

Emerson Electric

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 16 (%) 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.

Enerpac Tool Group

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enerpac Tool Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Enerpac Tool exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerson Electric and Enerpac Tool

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

The idea behind Emerson Electric and Enerpac Tool Group 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.