Correlation Between Emerson Electric and NetEase

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

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

Diversification Opportunities for Emerson Electric and NetEase

0.2

Correlation Coefficient

Emerson Electric  NetEase

Modest diversification

The 3 months correlation between Emerson and NetEase is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase 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 NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Emerson Electric i.e., Emerson Electric and NetEase go up and down completely randomly.

Pair Corralation between Emerson Electric and NetEase

Considering the 90-day investment horizon Emerson Electric is expected to generate 1.08 times less return on investment than NetEase. But when comparing it to its historical volatility, Emerson Electric is 1.6 times less risky than NetEase. It trades about 0.05 of its potential returns per unit of risk. NetEase is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,318  in NetEase on September 23, 2024 and sell it today you would earn a total of  1,891  from holding NetEase or generate 25.84% 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.  NetEase

Emerson Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 12 (%) 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.

NetEase

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerson Electric and NetEase

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

The idea behind Emerson Electric and NetEase 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.