Correlation Between Emerson Electric and ABB

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

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

Diversification Opportunities for Emerson Electric and ABB

0.31

Correlation Coefficient

Emerson Electric  ABB

Weak diversification

The 3 months correlation between Emerson and ABB is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric Co and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Emerson Electric 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 Emerson Electric Co are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Emerson Electric i.e., Emerson Electric and ABB go up and down completely randomly.

Pair Corralation between Emerson Electric and ABB

Assuming the 90 days horizon Emerson Electric Co is expected to under-perform the ABB. But the stock apears to be less risky and, when comparing its historical volatility, Emerson Electric Co is 1.53 times less risky than ABB. The stock trades about -0.12 of its potential returns per unit of risk. The ABB is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  5,250  in ABB on November 29, 2024 and sell it today you would lose (50.00) from holding ABB or give up 0.95% of portfolio value over 90 days.

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

Emerson Electric Co  vs.  ABB

Emerson Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emerson Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ABB

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, ABB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Emerson Electric and ABB

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

The idea behind Emerson Electric Co and ABB 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.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.