Correlation Between Emerson Electric and Modine Manufacturing
Can any of the company-specific risk be diversified away by investing in both Emerson Electric and Modine Manufacturing 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 Modine Manufacturing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerson Electric and Modine Manufacturing, you can compare the effects of market volatilities on Emerson Electric and Modine Manufacturing 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 Modine Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and Modine Manufacturing.
Diversification Opportunities for Emerson Electric and Modine Manufacturing
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Emerson and Modine is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing 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 are associated (or correlated) with Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of Emerson Electric i.e., Emerson Electric and Modine Manufacturing go up and down completely randomly.
Pair Corralation between Emerson Electric and Modine Manufacturing
Considering the 90-day investment horizon Emerson Electric is expected to generate 2.56 times less return on investment than Modine Manufacturing. But when comparing it to its historical volatility, Emerson Electric is 2.27 times less risky than Modine Manufacturing. It trades about 0.1 of its potential returns per unit of risk. Modine Manufacturing is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 5,184 in Modine Manufacturing on September 14, 2024 and sell it today you would earn a total of 8,029 from holding Modine Manufacturing or generate 154.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerson Electric vs. Modine Manufacturing
Performance |
| Timeline |
| Emerson Electric |
| Modine Manufacturing |
Emerson Electric and Modine Manufacturing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerson Electric and Modine Manufacturing
The main advantage of trading using opposite Emerson Electric and Modine Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Electric position performs unexpectedly, Modine Manufacturing 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 Modine Manufacturing will offset losses from the drop in Modine Manufacturing's long position.| Emerson Electric vs. Dover | Emerson Electric vs. Parker Hannifin | Emerson Electric vs. Pentair PLC | Emerson Electric vs. Eaton PLC |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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