Correlation Between Lennar and Emerson Electric

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

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

Diversification Opportunities for Lennar and Emerson Electric

-0.31

Correlation Coefficient

Lennar  Emerson Electric

Very good diversification

The 3 months correlation between Lennar and Emerson is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lennar 475 percent and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Lennar 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 Lennar 475 percent 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 Lennar i.e., Lennar and Emerson Electric go up and down completely randomly.

Pair Corralation between Lennar and Emerson Electric

Assuming the 90 days trading horizon Lennar 475 percent is expected to under-perform the Emerson Electric. But the bond apears to be less risky and, when comparing its historical volatility, Lennar 475 percent is 4.49 times less risky than Emerson Electric. The bond trades about -0.2 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	95.38%
Values	Daily Returns

Lennar 475 percent  vs.  Emerson Electric

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.

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 Lennar and Emerson Electric

The main advantage of trading using opposite Lennar and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennar 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 Lennar 475 percent 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.