Correlation Between Entergy Louisiana and Emerson Electric

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

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

Diversification Opportunities for Entergy Louisiana and Emerson Electric

0.31

Correlation Coefficient

Entergy Louisiana  Emerson Electric

Weak diversification

The 3 months correlation between Entergy and Emerson is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Louisiana LLC and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Entergy Louisiana 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 Entergy Louisiana LLC 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 Entergy Louisiana i.e., Entergy Louisiana and Emerson Electric go up and down completely randomly.

Pair Corralation between Entergy Louisiana and Emerson Electric

Considering the 90-day investment horizon Entergy Louisiana LLC is expected to generate 0.52 times more return on investment than Emerson Electric. However, Entergy Louisiana LLC is 1.94 times less risky than Emerson Electric. It trades about -0.02 of its potential returns per unit of risk. Emerson Electric is currently generating about -0.09 per unit of risk. If you would invest  2,101  in Entergy Louisiana LLC on December 28, 2024 and sell it today you would lose (24.00) from holding Entergy Louisiana LLC or give up 1.14% of portfolio value over 90 days.

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

Entergy Louisiana LLC  vs.  Emerson Electric

Entergy Louisiana LLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Entergy Louisiana LLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Entergy Louisiana is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Entergy Louisiana and Emerson Electric

The main advantage of trading using opposite Entergy Louisiana and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Louisiana 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 Entergy Louisiana LLC 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.