Correlation Between Emerson Electric and Nidec

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

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

Diversification Opportunities for Emerson Electric and Nidec

-0.32

Correlation Coefficient

Emerson Electric  Nidec

Very good diversification

The 3 months correlation between Emerson and Nidec is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Nidec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nidec 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 Nidec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nidec has no effect on the direction of Emerson Electric i.e., Emerson Electric and Nidec go up and down completely randomly.

Pair Corralation between Emerson Electric and Nidec

Considering the 90-day investment horizon Emerson Electric is expected to generate 16.24 times less return on investment than Nidec. But when comparing it to its historical volatility, Emerson Electric is 13.76 times less risky than Nidec. It trades about 0.07 of its potential returns per unit of risk. Nidec is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,451  in Nidec on September 12, 2024 and sell it today you would lose (605.00) from holding Nidec or give up 24.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Emerson Electric  vs.  Nidec

Emerson Electric

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Nidec

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nidec are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nidec reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerson Electric and Nidec

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

The idea behind Emerson Electric and Nidec 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.