Correlation Between 3M and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Emerson Electric Co, you can compare the effects of market volatilities on 3M 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 3M with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Emerson Electric.
Diversification Opportunities for 3M and Emerson Electric
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 3M and Emerson is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and 3M 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 3M Company 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 3M i.e., 3M and Emerson Electric go up and down completely randomly.
Pair Corralation between 3M and Emerson Electric
Assuming the 90 days horizon 3M is expected to generate 1.93 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, 3M Company is 1.19 times less risky than Emerson Electric. It trades about 0.04 of its potential returns per unit of risk. Emerson Electric Co is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 12,043 in Emerson Electric Co on September 13, 2024 and sell it today you would earn a total of 243.00 from holding Emerson Electric Co or generate 2.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. Emerson Electric Co
Performance |
| Timeline |
| 3M Company |
| Emerson Electric |
3M and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Emerson Electric
The main advantage of trading using opposite 3M and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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.| 3M vs. Motorcar Parts of | 3M vs. Cogent Communications Holdings | 3M vs. Zoom Video Communications | 3M vs. Carsales |
| Emerson Electric vs. Mitsubishi Gas Chemical | Emerson Electric vs. HYATT HOTELS A | Emerson Electric vs. AIR PRODCHEMICALS | Emerson Electric vs. Silicon Motion Technology |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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