Correlation Between Taylor Devices and Emerson Electric

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

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

Diversification Opportunities for Taylor Devices and Emerson Electric

-0.58

Correlation Coefficient

Taylor Devices  Emerson Electric

Excellent diversification

The 3 months correlation between Taylor and Emerson is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Devices and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Taylor Devices 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 Taylor Devices 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 Taylor Devices i.e., Taylor Devices and Emerson Electric go up and down completely randomly.

Pair Corralation between Taylor Devices and Emerson Electric

Given the investment horizon of 90 days Taylor Devices is expected to under-perform the Emerson Electric. In addition to that, Taylor Devices is 2.64 times more volatile than Emerson Electric. It trades about -0.02 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 2, 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Taylor Devices  vs.  Emerson Electric

Taylor Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taylor Devices has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm 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 Taylor Devices and Emerson Electric

The main advantage of trading using opposite Taylor Devices and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taylor Devices 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 Taylor Devices 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.