Correlation Between Emerson Electric and PACCAR
Can any of the company-specific risk be diversified away by investing in both Emerson Electric and PACCAR 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 PACCAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Emerson Electric and PACCAR Inc, you can compare the effects of market volatilities on Emerson Electric and PACCAR 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 PACCAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and PACCAR.
Diversification Opportunities for Emerson Electric and PACCAR
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Emerson and PACCAR is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Emerson Electric i.e., Emerson Electric and PACCAR go up and down completely randomly.
Pair Corralation between Emerson Electric and PACCAR
Considering the 90-day investment horizon Emerson Electric is expected to generate 0.72 times more return on investment than PACCAR. However, Emerson Electric is 1.4 times less risky than PACCAR. It trades about 0.06 of its potential returns per unit of risk. PACCAR Inc is currently generating about -0.11 per unit of risk. If you would invest 12,963 in Emerson Electric on September 14, 2024 and sell it today you would earn a total of 153.00 from holding Emerson Electric or generate 1.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Emerson Electric vs. PACCAR Inc
Performance |
| Timeline |
| Emerson Electric |
| PACCAR Inc |
Emerson Electric and PACCAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Emerson Electric and PACCAR
The main advantage of trading using opposite Emerson Electric and PACCAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Electric position performs unexpectedly, PACCAR 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 PACCAR will offset losses from the drop in PACCAR's long position.| Emerson Electric vs. Dover | Emerson Electric vs. Parker Hannifin | Emerson Electric vs. Pentair PLC | Emerson Electric vs. Eaton PLC |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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