Correlation Between Emerson Electric and Rheinmetall
Can any of the company-specific risk be diversified away by investing in both Emerson Electric and Rheinmetall 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 Emerson Electric and Rheinmetall into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerson Electric Co and Rheinmetall AG, you can compare the effects of market volatilities on Emerson Electric and Rheinmetall 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 Emerson Electric with a short position of Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and Rheinmetall.
Diversification Opportunities for Emerson Electric and Rheinmetall
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Emerson and Rheinmetall is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric Co and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and Emerson Electric 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 Emerson Electric Co are associated (or correlated) with Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of Emerson Electric i.e., Emerson Electric and Rheinmetall go up and down completely randomly.
Pair Corralation between Emerson Electric and Rheinmetall
Assuming the 90 days horizon Emerson Electric is expected to generate 2.4 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Emerson Electric Co is 1.22 times less risky than Rheinmetall. It trades about 0.08 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 32,799 in Rheinmetall AG on October 20, 2024 and sell it today you would earn a total of 36,301 from holding Rheinmetall AG or generate 110.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerson Electric Co vs. Rheinmetall AG
Performance |
| Timeline |
| Emerson Electric |
| Rheinmetall AG |
Emerson Electric and Rheinmetall Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerson Electric and Rheinmetall
The main advantage of trading using opposite Emerson Electric and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Electric position performs unexpectedly, Rheinmetall 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 Rheinmetall will offset losses from the drop in Rheinmetall's long position.| Emerson Electric vs. Eaton PLC | Emerson Electric vs. ABB | Emerson Electric vs. 3M Company | Emerson Electric vs. Trane Technologies plc |
| Rheinmetall vs. Eaton PLC | Rheinmetall vs. ABB | Rheinmetall vs. 3M Company | Rheinmetall vs. Emerson Electric Co |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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