Correlation Between Emerson Electric and Topbuild Corp

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

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

Diversification Opportunities for Emerson Electric and Topbuild Corp

0.77

Correlation Coefficient

Emerson Electric  Topbuild Corp

Poor diversification

The 3 months correlation between Emerson and Topbuild is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Topbuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topbuild Corp 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 are associated (or correlated) with Topbuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topbuild Corp has no effect on the direction of Emerson Electric i.e., Emerson Electric and Topbuild Corp go up and down completely randomly.

Pair Corralation between Emerson Electric and Topbuild Corp

Considering the 90-day investment horizon Emerson Electric is expected to under-perform the Topbuild Corp. But the stock apears to be less risky and, when comparing its historical volatility, Emerson Electric is 1.05 times less risky than Topbuild Corp. The stock trades about -0.15 of its potential returns per unit of risk. The Topbuild Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  30,353  in Topbuild Corp on December 29, 2024 and sell it today you would earn a total of  748.00  from holding Topbuild Corp or generate 2.46% return on investment over 90 days.

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

Emerson Electric  vs.  Topbuild Corp

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.

Topbuild Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Emerson Electric and Topbuild Corp

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

The idea behind Emerson Electric and Topbuild Corp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.