Correlation Between Emerson Electric and Gladstone Land

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

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

Diversification Opportunities for Emerson Electric and Gladstone Land

0.35

Correlation Coefficient

Emerson Electric  Gladstone Land

Weak diversification

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

Pair Corralation between Emerson Electric and Gladstone Land

Considering the 90-day investment horizon Emerson Electric is expected to generate 1.81 times more return on investment than Gladstone Land. However, Emerson Electric is 1.81 times more volatile than Gladstone Land. It trades about 0.23 of its potential returns per unit of risk. Gladstone Land is currently generating about 0.02 per unit of risk. If you would invest  10,106  in Emerson Electric on September 12, 2024 and sell it today you would earn a total of  2,809  from holding Emerson Electric or generate 27.8% return on investment over 90 days.

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

Emerson Electric  vs.  Gladstone Land

Emerson Electric

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Gladstone Land

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Land are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Gladstone Land is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Emerson Electric and Gladstone Land

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

The idea behind Emerson Electric and Gladstone Land 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 Channel module to use Commodity Channel Index to analyze current equity momentum.