Correlation Between EMCOR and Innovative Industrial

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

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

Diversification Opportunities for EMCOR and Innovative Industrial

0.26

Correlation Coefficient

EMCOR  Innovative Industrial

Modest diversification

The 3 months correlation between EMCOR and Innovative is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Innovative Industrial Properti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Industrial and EMCOR 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 EMCOR Group are associated (or correlated) with Innovative Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Industrial has no effect on the direction of EMCOR i.e., EMCOR and Innovative Industrial go up and down completely randomly.

Pair Corralation between EMCOR and Innovative Industrial

Considering the 90-day investment horizon EMCOR Group is expected to generate 1.7 times more return on investment than Innovative Industrial. However, EMCOR is 1.7 times more volatile than Innovative Industrial Properties. It trades about 0.13 of its potential returns per unit of risk. Innovative Industrial Properties is currently generating about -0.02 per unit of risk. If you would invest  15,182  in EMCOR Group on October 4, 2024 and sell it today you would earn a total of  30,208  from holding EMCOR Group or generate 198.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.12%
Values	Daily Returns

EMCOR Group  vs.  Innovative Industrial Properti

EMCOR Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, EMCOR is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Innovative Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Innovative Industrial Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Innovative Industrial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with EMCOR and Innovative Industrial

The main advantage of trading using opposite EMCOR and Innovative Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMCOR position performs unexpectedly, Innovative Industrial 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 Innovative Industrial will offset losses from the drop in Innovative Industrial's long position.

The idea behind EMCOR Group and Innovative Industrial Properties 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.