Correlation Between IDEX and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both IDEX 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 IDEX and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IDEX Corporation and Emerson Electric, you can compare the effects of market volatilities on IDEX 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 IDEX with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDEX and Emerson Electric.
Diversification Opportunities for IDEX and Emerson Electric
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IDEX and Emerson is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding IDEX Corp. and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and IDEX 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 IDEX Corporation 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 IDEX i.e., IDEX and Emerson Electric go up and down completely randomly.
Pair Corralation between IDEX and Emerson Electric
Considering the 90-day investment horizon IDEX is expected to generate 1.62 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, IDEX Corporation is 1.07 times less risky than Emerson Electric. It trades about 0.23 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 10,807 in Emerson Electric on August 24, 2024 and sell it today you would earn a total of 2,020 from holding Emerson Electric or generate 18.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
IDEX Corp. vs. Emerson Electric
Performance |
| Timeline |
| IDEX |
| Emerson Electric |
IDEX and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IDEX and Emerson Electric
The main advantage of trading using opposite IDEX and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDEX 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.The idea behind IDEX Corporation and Emerson Electric 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.| 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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