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

0.17

Correlation Coefficient

Emerson Electric  3M

Average diversification

The 3 months correlation between Emerson and 3M is 0.17. 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 trading horizon Emerson Electric is expected to generate 4.04 times less return on investment than 3M. But when comparing it to its historical volatility, Emerson Electric Co is 3.55 times less risky than 3M. It trades about 0.1 of its potential returns per unit of risk. 3M Company is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  187,410  in 3M Company on September 27, 2024 and sell it today you would earn a total of  71,590  from holding 3M Company or generate 38.2% return on investment over 90 days.

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

Emerson Electric Co  vs.  3M Company

Emerson Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Emerson Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

3M Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, 3M is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.