Correlation Between Emerson Electric and Four Seasons

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

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

Diversification Opportunities for Emerson Electric and Four Seasons

-0.27

Correlation Coefficient

Emerson Electric  Four Seasons

Very good diversification

The 3 months correlation between Emerson and Four is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Four Seasons Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Four Seasons Education 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 Four Seasons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Four Seasons Education has no effect on the direction of Emerson Electric i.e., Emerson Electric and Four Seasons go up and down completely randomly.

Pair Corralation between Emerson Electric and Four Seasons

Considering the 90-day investment horizon Emerson Electric is expected to under-perform the Four Seasons. But the stock apears to be less risky and, when comparing its historical volatility, Emerson Electric is 2.6 times less risky than Four Seasons. The stock trades about -0.05 of its potential returns per unit of risk. The Four Seasons Education is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,100  in Four Seasons Education on September 20, 2024 and sell it today you would lose (7.00) from holding Four Seasons Education or give up 0.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Emerson Electric  vs.  Four Seasons Education

Emerson Electric

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 15 (%) 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.

Four Seasons Education

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Four Seasons Education are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Four Seasons unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerson Electric and Four Seasons

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

The idea behind Emerson Electric and Four Seasons Education 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.