Correlation Between Tyson Foods and Emerson Electric

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

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

Diversification Opportunities for Tyson Foods and Emerson Electric

0.55

Correlation Coefficient

Tyson Foods  Emerson Electric

Very weak diversification

The 3 months correlation between Tyson and Emerson is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Tyson Foods 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 Tyson Foods 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 Tyson Foods i.e., Tyson Foods and Emerson Electric go up and down completely randomly.

Pair Corralation between Tyson Foods and Emerson Electric

Considering the 90-day investment horizon Tyson Foods is expected to generate 3.88 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, Tyson Foods is 1.38 times less risky than Emerson Electric. It trades about 0.07 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  11,218  in Emerson Electric on September 13, 2024 and sell it today you would earn a total of  1,894  from holding Emerson Electric or generate 16.88% return on investment over 90 days.

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

Tyson Foods  vs.  Emerson Electric

Tyson Foods

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tyson Foods are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Tyson Foods is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Emerson Electric

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 18 (%) 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 Tyson Foods and Emerson Electric

The main advantage of trading using opposite Tyson Foods and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tyson Foods 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 Tyson Foods 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.