Correlation Between Emerson Electric and 3M

Can any of the company-specific risk be diversified away by investing in both Emerson Electric and 3M 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 3M 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 3M Company, you can compare the effects of market volatilities on Emerson Electric and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and 3M.

Diversification Opportunities for Emerson Electric and 3M

0.57

Correlation Coefficient

Emerson Electric  3M

Very weak diversification

The 3 months correlation between Emerson and 3M is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric Co and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company 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 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Emerson Electric i.e., Emerson Electric and 3M go up and down completely randomly.

Pair Corralation between Emerson Electric and 3M

Assuming the 90 days horizon Emerson Electric Co is expected to under-perform the 3M. In addition to that, Emerson Electric is 1.14 times more volatile than 3M Company. It trades about -0.16 of its total potential returns per unit of risk. 3M Company is currently generating about 0.04 per unit of volatility. If you would invest  12,308  in 3M Company on September 23, 2024 and sell it today you would earn a total of  96.00  from holding 3M Company or generate 0.78% return on investment over 90 days.

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

Emerson Electric Co  vs.  3M Company

Emerson Electric

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

3M Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 3M Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, 3M is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Emerson Electric and 3M

The main advantage of trading using opposite Emerson Electric and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Electric position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.

The idea behind Emerson Electric Co and 3M Company 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..