Correlation Between Ballard Power and Emerson Electric

Can any of the company-specific risk be diversified away by investing in both Ballard Power 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 Ballard Power and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ballard Power Systems and Emerson Electric, you can compare the effects of market volatilities on Ballard Power 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 Ballard Power with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ballard Power and Emerson Electric.

Diversification Opportunities for Ballard Power and Emerson Electric

-0.86

Correlation Coefficient

Ballard Power  Emerson Electric

Pay attention - limited upside

The 3 months correlation between Ballard and Emerson is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ballard Power Systems and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Ballard Power 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 Ballard Power Systems 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 Ballard Power i.e., Ballard Power and Emerson Electric go up and down completely randomly.

Pair Corralation between Ballard Power and Emerson Electric

Given the investment horizon of 90 days Ballard Power Systems is expected to under-perform the Emerson Electric. In addition to that, Ballard Power is 2.53 times more volatile than Emerson Electric. It trades about -0.03 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.25 per unit of volatility. If you would invest  10,160  in Emerson Electric on September 2, 2024 and sell it today you would earn a total of  3,100  from holding Emerson Electric or generate 30.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ballard Power Systems  vs.  Emerson Electric

Ballard Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ballard Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Emerson Electric

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ballard Power and Emerson Electric

The main advantage of trading using opposite Ballard Power and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ballard Power 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 Ballard Power Systems 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.