Correlation Between Fluor and EMCOR
Can any of the company-specific risk be diversified away by investing in both Fluor and EMCOR 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 Fluor and EMCOR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fluor and EMCOR Group, you can compare the effects of market volatilities on Fluor and EMCOR 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 Fluor with a short position of EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fluor and EMCOR.
Diversification Opportunities for Fluor and EMCOR
Poor diversification
The 3 months correlation between Fluor and EMCOR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fluor and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and Fluor 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 Fluor are associated (or correlated) with EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Fluor i.e., Fluor and EMCOR go up and down completely randomly.
Pair Corralation between Fluor and EMCOR
Considering the 90-day investment horizon Fluor is expected to generate 3.33 times less return on investment than EMCOR. In addition to that, Fluor is 1.89 times more volatile than EMCOR Group. It trades about 0.06 of its total potential returns per unit of risk. EMCOR Group is currently generating about 0.37 per unit of volatility. If you would invest 44,562 in EMCOR Group on August 24, 2024 and sell it today you would earn a total of 8,133 from holding EMCOR Group or generate 18.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fluor vs. EMCOR Group
Performance |
| Timeline |
| Fluor |
| EMCOR Group |
Fluor and EMCOR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fluor and EMCOR
The main advantage of trading using opposite Fluor and EMCOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fluor position performs unexpectedly, EMCOR 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 EMCOR will offset losses from the drop in EMCOR's long position.The idea behind Fluor and EMCOR Group 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.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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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