Correlation Between Donaldson and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both Donaldson 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 Donaldson and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Donaldson and Emerson Electric, you can compare the effects of market volatilities on Donaldson 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 Donaldson with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Donaldson and Emerson Electric.
Diversification Opportunities for Donaldson and Emerson Electric
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Donaldson and Emerson is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Donaldson 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 Donaldson 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 Donaldson i.e., Donaldson and Emerson Electric go up and down completely randomly.
Pair Corralation between Donaldson and Emerson Electric
Considering the 90-day investment horizon Donaldson is expected to generate 0.73 times more return on investment than Emerson Electric. However, Donaldson is 1.38 times less risky than Emerson Electric. It trades about 0.04 of its potential returns per unit of risk. Emerson Electric is currently generating about -0.09 per unit of risk. If you would invest 6,702 in Donaldson on December 29, 2024 and sell it today you would earn a total of 173.00 from holding Donaldson or generate 2.58% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Donaldson vs. Emerson Electric
Performance |
Timeline |
Donaldson |
Emerson Electric |
Donaldson and Emerson Electric Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Donaldson and Emerson Electric
The main advantage of trading using opposite Donaldson and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Donaldson 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.Donaldson vs. IDEX Corporation | Donaldson vs. Watts Water Technologies | Donaldson vs. Gorman Rupp | Donaldson vs. Enerpac Tool Group |
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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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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