Correlation Between Emerson Electric and Babcock Wilcox

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

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

Diversification Opportunities for Emerson Electric and Babcock Wilcox

-0.35

Correlation Coefficient

Emerson Electric  Babcock Wilcox

Very good diversification

The 3 months correlation between Emerson and Babcock is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Emerson Electric i.e., Emerson Electric and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Emerson Electric and Babcock Wilcox

Considering the 90-day investment horizon Emerson Electric is expected to generate 0.89 times more return on investment than Babcock Wilcox. However, Emerson Electric is 1.12 times less risky than Babcock Wilcox. It trades about 0.43 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about 0.06 per unit of risk. If you would invest  10,783  in Emerson Electric on September 1, 2024 and sell it today you would earn a total of  2,477  from holding Emerson Electric or generate 22.97% return on investment over 90 days.

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

Emerson Electric  vs.  Babcock Wilcox Enterprises

Emerson Electric

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerson Electric and Babcock Wilcox

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

The idea behind Emerson Electric and Babcock Wilcox Enterprises 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.