Correlation Between ScanSource and Emerson Electric

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

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

Diversification Opportunities for ScanSource and Emerson Electric

0.58

Correlation Coefficient

ScanSource  Emerson Electric

Very weak diversification

The 3 months correlation between ScanSource and Emerson is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and ScanSource 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 ScanSource are associated (or correlated) with Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of ScanSource i.e., ScanSource and Emerson Electric go up and down completely randomly.

Pair Corralation between ScanSource and Emerson Electric

Given the investment horizon of 90 days ScanSource is expected to generate 5.19 times less return on investment than Emerson Electric. In addition to that, ScanSource is 1.36 times more volatile than Emerson Electric. It trades about 0.04 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.25 per unit of volatility. If you would invest  10,160  in Emerson Electric on September 1, 2024 and sell it today you would earn a total of  3,100  from holding Emerson Electric or generate 30.51% return on investment over 90 days.

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

ScanSource  vs.  Emerson Electric

ScanSource

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ScanSource is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Emerson Electric

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 19 (%) 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.

Pair Trading with ScanSource and Emerson Electric

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

The idea behind ScanSource and Emerson Electric 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.