Correlation Between Emerson Electric and Lennar

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

By analyzing existing cross correlation between Emerson Electric and Lennar 475 percent, you can compare the effects of market volatilities on Emerson Electric and Lennar 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 Lennar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and Lennar.

Diversification Opportunities for Emerson Electric and Lennar

-0.31

Correlation Coefficient

Emerson Electric  Lennar

Very good diversification

The 3 months correlation between Emerson and Lennar is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Lennar 475 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 475 percent 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar 475 percent has no effect on the direction of Emerson Electric i.e., Emerson Electric and Lennar go up and down completely randomly.

Pair Corralation between Emerson Electric and Lennar

Considering the 90-day investment horizon Emerson Electric is expected to generate 3.3 times more return on investment than Lennar. However, Emerson Electric is 3.3 times more volatile than Lennar 475 percent. It trades about 0.05 of its potential returns per unit of risk. Lennar 475 percent is currently generating about 0.0 per unit of risk. If you would invest  9,212  in Emerson Electric on September 24, 2024 and sell it today you would earn a total of  3,197  from holding Emerson Electric or generate 34.7% return on investment over 90 days.

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

Emerson Electric  vs.  Lennar 475 percent

Emerson Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 11 (%) 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.

Lennar 475 percent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar 475 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lennar 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 Lennar

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

The idea behind Emerson Electric and Lennar 475 percent 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.