Correlation Between Emerson Electric and HNI Corp

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

Diversification Opportunities for Emerson Electric and HNI Corp

0.56

Correlation Coefficient

Emerson Electric  HNI Corp

Very weak diversification

The 3 months correlation between Emerson and HNI is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and HNI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNI 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 HNI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNI Corp has no effect on the direction of Emerson Electric i.e., Emerson Electric and HNI Corp go up and down completely randomly.

Pair Corralation between Emerson Electric and HNI Corp

Considering the 90-day investment horizon Emerson Electric is expected to generate 0.82 times more return on investment than HNI Corp. However, Emerson Electric is 1.22 times less risky than HNI Corp. It trades about 0.15 of its potential returns per unit of risk. HNI Corp is currently generating about -0.04 per unit of risk. If you would invest  12,639  in Emerson Electric on October 27, 2024 and sell it today you would earn a total of  478.00  from holding Emerson Electric or generate 3.78% return on investment over 90 days.

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

Emerson Electric  vs.  HNI Corp

Emerson Electric

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 14 (%) 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.

HNI Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNI Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, HNI Corp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Emerson Electric and HNI Corp

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

The idea behind Emerson Electric and HNI 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.