Correlation Between Crane and Emerson Electric

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

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

Diversification Opportunities for Crane and Emerson Electric

0.6

Correlation Coefficient

Crane  Emerson Electric

Poor diversification

The 3 months correlation between Crane and Emerson is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Crane 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 Crane 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 Crane i.e., Crane and Emerson Electric go up and down completely randomly.

Pair Corralation between Crane and Emerson Electric

Allowing for the 90-day total investment horizon Crane Company is expected to generate 1.44 times more return on investment than Emerson Electric. However, Crane is 1.44 times more volatile than Emerson Electric. It trades about 0.03 of its potential returns per unit of risk. Emerson Electric is currently generating about -0.09 per unit of risk. If you would invest  15,197  in Crane Company on December 28, 2024 and sell it today you would earn a total of  394.00  from holding Crane Company or generate 2.59% return on investment over 90 days.

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

Crane Company  vs.  Emerson Electric

Crane Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Crane is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Emerson Electric

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Crane and Emerson Electric

The main advantage of trading using opposite Crane and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crane 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 Crane Company 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.