Correlation Between Emerson Electric and Park Electrochemical

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

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

Diversification Opportunities for Emerson Electric and Park Electrochemical

0.73

Correlation Coefficient

Emerson Electric  Park Electrochemical

Poor diversification

The 3 months correlation between Emerson and Park is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Emerson Electric i.e., Emerson Electric and Park Electrochemical go up and down completely randomly.

Pair Corralation between Emerson Electric and Park Electrochemical

Considering the 90-day investment horizon Emerson Electric is expected to under-perform the Park Electrochemical. But the stock apears to be less risky and, when comparing its historical volatility, Emerson Electric is 1.35 times less risky than Park Electrochemical. The stock trades about -0.25 of its potential returns per unit of risk. The Park Electrochemical is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,476  in Park Electrochemical on October 11, 2024 and sell it today you would lose (72.00) from holding Park Electrochemical or give up 4.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Emerson Electric  vs.  Park Electrochemical

Emerson Electric

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Emerson Electric may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Park Electrochemical

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Emerson Electric and Park Electrochemical

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

The idea behind Emerson Electric and Park Electrochemical 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.