Correlation Between SMC Corp and Emerson Electric

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

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

Diversification Opportunities for SMC Corp and Emerson Electric

-0.25

Correlation Coefficient

SMC Corp  Emerson Electric

Very good diversification

The 3 months correlation between SMC and Emerson is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding SMC Corp Japan and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and SMC Corp 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 SMC Corp Japan 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 SMC Corp i.e., SMC Corp and Emerson Electric go up and down completely randomly.

Pair Corralation between SMC Corp and Emerson Electric

Assuming the 90 days horizon SMC Corp Japan is expected to under-perform the Emerson Electric. But the pink sheet apears to be less risky and, when comparing its historical volatility, SMC Corp Japan is 1.01 times less risky than Emerson Electric. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Emerson Electric is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  10,591  in Emerson Electric on September 24, 2024 and sell it today you would earn a total of  1,802  from holding Emerson Electric or generate 17.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SMC Corp Japan  vs.  Emerson Electric

SMC Corp Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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.

Pair Trading with SMC Corp and Emerson Electric

The main advantage of trading using opposite SMC Corp and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMC Corp 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 SMC Corp Japan 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..