Correlation Between Mills Music and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both Mills Music 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 Mills Music and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mills Music Trust and Emerson Electric, you can compare the effects of market volatilities on Mills Music 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 Mills Music with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mills Music and Emerson Electric.
Diversification Opportunities for Mills Music and Emerson Electric
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Mills and Emerson is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Mills Music Trust and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Mills Music 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 Mills Music Trust 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 Mills Music i.e., Mills Music and Emerson Electric go up and down completely randomly.
Pair Corralation between Mills Music and Emerson Electric
Assuming the 90 days horizon Mills Music is expected to generate 1.8 times less return on investment than Emerson Electric. In addition to that, Mills Music is 2.23 times more volatile than Emerson Electric. It trades about 0.06 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.23 per unit of volatility. If you would invest 10,349 in Emerson Electric on August 28, 2024 and sell it today you would earn a total of 2,926 from holding Emerson Electric or generate 28.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mills Music Trust vs. Emerson Electric
Performance |
| Timeline |
| Mills Music Trust |
| Emerson Electric |
Mills Music and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mills Music and Emerson Electric
The main advantage of trading using opposite Mills Music and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mills Music 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.| Mills Music vs. Cintas | Mills Music vs. Thomson Reuters Corp | Mills Music vs. Global Payments | Mills Music vs. RB Global |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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