Correlation Between Emerson Electric and Spirax-Sarco Engineering

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

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

Diversification Opportunities for Emerson Electric and Spirax-Sarco Engineering

-0.68

Correlation Coefficient

Emerson Electric  Spirax-Sarco Engineering

Excellent diversification

The 3 months correlation between Emerson and Spirax-Sarco is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Spirax Sarco Engineering PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirax-Sarco Engineering 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 Spirax-Sarco Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirax-Sarco Engineering has no effect on the direction of Emerson Electric i.e., Emerson Electric and Spirax-Sarco Engineering go up and down completely randomly.

Pair Corralation between Emerson Electric and Spirax-Sarco Engineering

Considering the 90-day investment horizon Emerson Electric is expected to generate 0.82 times more return on investment than Spirax-Sarco Engineering. However, Emerson Electric is 1.22 times less risky than Spirax-Sarco Engineering. It trades about 0.27 of its potential returns per unit of risk. Spirax Sarco Engineering PLC is currently generating about -0.03 per unit of risk. If you would invest  10,045  in Emerson Electric on September 4, 2024 and sell it today you would earn a total of  3,332  from holding Emerson Electric or generate 33.17% return on investment over 90 days.

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

Emerson Electric  vs.  Spirax Sarco Engineering PLC

Emerson Electric

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 21 (%) 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.

Spirax-Sarco Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirax Sarco Engineering PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Spirax-Sarco Engineering is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerson Electric and Spirax-Sarco Engineering

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

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