Correlation Between Trane Technologies and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both Trane Technologies 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 Trane Technologies and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Trane Technologies plc and Emerson Electric Co, you can compare the effects of market volatilities on Trane Technologies 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 Trane Technologies with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and Emerson Electric.
Diversification Opportunities for Trane Technologies and Emerson Electric
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Trane and Emerson is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Trane Technologies 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 Trane Technologies plc 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 Trane Technologies i.e., Trane Technologies and Emerson Electric go up and down completely randomly.
Pair Corralation between Trane Technologies and Emerson Electric
Assuming the 90 days horizon Trane Technologies plc is expected to generate 0.83 times more return on investment than Emerson Electric. However, Trane Technologies plc is 1.2 times less risky than Emerson Electric. It trades about 0.13 of its potential returns per unit of risk. Emerson Electric Co is currently generating about 0.07 per unit of risk. If you would invest 30,926 in Trane Technologies plc on August 25, 2024 and sell it today you would earn a total of 9,064 from holding Trane Technologies plc or generate 29.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.24% |
| Values | Daily Returns |
Trane Technologies plc vs. Emerson Electric Co
Performance |
| Timeline |
| Trane Technologies plc |
| Emerson Electric |
Trane Technologies and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Trane Technologies and Emerson Electric
The main advantage of trading using opposite Trane Technologies and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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 Trane Technologies plc and Emerson Electric Co 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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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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