Correlation Between CompoSecure and Emerson Electric

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

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

Diversification Opportunities for CompoSecure and Emerson Electric

0.38

Correlation Coefficient

CompoSecure  Emerson Electric

Weak diversification

The 3 months correlation between CompoSecure and Emerson is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding CompoSecure and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and CompoSecure 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 CompoSecure 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 CompoSecure i.e., CompoSecure and Emerson Electric go up and down completely randomly.

Pair Corralation between CompoSecure and Emerson Electric

Assuming the 90 days horizon CompoSecure is expected to under-perform the Emerson Electric. In addition to that, CompoSecure is 4.02 times more volatile than Emerson Electric. It trades about -0.09 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.18 per unit of volatility. If you would invest  12,393  in Emerson Electric on October 24, 2024 and sell it today you would earn a total of  601.00  from holding Emerson Electric or generate 4.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CompoSecure  vs.  Emerson Electric

CompoSecure

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CompoSecure are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, CompoSecure may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Emerson Electric

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CompoSecure and Emerson Electric

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

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.