Correlation Between China Yuchai and Emerson Electric

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

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

Diversification Opportunities for China Yuchai and Emerson Electric

-0.42

Correlation Coefficient

China Yuchai  Emerson Electric

Very good diversification

The 3 months correlation between China and Emerson is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding China Yuchai International and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and China Yuchai 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 China Yuchai International 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 China Yuchai i.e., China Yuchai and Emerson Electric go up and down completely randomly.

Pair Corralation between China Yuchai and Emerson Electric

Considering the 90-day investment horizon China Yuchai International is expected to generate 6.36 times more return on investment than Emerson Electric. However, China Yuchai is 6.36 times more volatile than Emerson Electric. It trades about 0.35 of its potential returns per unit of risk. Emerson Electric is currently generating about -0.21 per unit of risk. If you would invest  1,095  in China Yuchai International on December 2, 2024 and sell it today you would earn a total of  817.00  from holding China Yuchai International or generate 74.61% return on investment over 90 days.

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

China Yuchai International  vs.  Emerson Electric

China Yuchai Interna

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Yuchai International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, China Yuchai exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 China Yuchai and Emerson Electric

The main advantage of trading using opposite China Yuchai and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Yuchai 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 China Yuchai International 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.