Correlation Between Bank of America and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Emerson Electric Co, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Emerson Electric.
Diversification Opportunities for Bank of America and Emerson Electric
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Emerson is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Emerson Electric go up and down completely randomly.
Pair Corralation between Bank of America and Emerson Electric
Considering the 90-day investment horizon Bank of America is expected to generate 2.18 times more return on investment than Emerson Electric. However, Bank of America is 2.18 times more volatile than Emerson Electric Co. It trades about 0.11 of its potential returns per unit of risk. Emerson Electric Co is currently generating about 0.1 per unit of risk. If you would invest 3,949 in Bank of America on August 29, 2024 and sell it today you would earn a total of 828.00 from holding Bank of America or generate 20.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Emerson Electric Co
Performance |
| Timeline |
| Bank of America |
| Emerson Electric |
Bank of America and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Emerson Electric
The main advantage of trading using opposite Bank of America and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Citigroup | Bank of America vs. Wells Fargo | Bank of America vs. Toronto Dominion Bank | Bank of America vs. JPMorgan Chase Co |
| Emerson Electric vs. New Oriental Education | Emerson Electric vs. McEwen Mining | Emerson Electric vs. Ameriprise Financial | Emerson Electric vs. Lloyds Banking Group |
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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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