Correlation Between Emerson Electric and Regal Beloit

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

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

Diversification Opportunities for Emerson Electric and Regal Beloit

0.68

Correlation Coefficient

Emerson Electric  Regal Beloit

Poor diversification

The 3 months correlation between Emerson and Regal is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Regal Beloit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regal Beloit 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 Regal Beloit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regal Beloit has no effect on the direction of Emerson Electric i.e., Emerson Electric and Regal Beloit go up and down completely randomly.

Pair Corralation between Emerson Electric and Regal Beloit

Considering the 90-day investment horizon Emerson Electric is expected to generate 0.74 times more return on investment than Regal Beloit. However, Emerson Electric is 1.35 times less risky than Regal Beloit. It trades about 0.21 of its potential returns per unit of risk. Regal Beloit is currently generating about 0.02 per unit of risk. If you would invest  10,496  in Emerson Electric on August 30, 2024 and sell it today you would earn a total of  2,763  from holding Emerson Electric or generate 26.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Emerson Electric  vs.  Regal Beloit

Emerson Electric

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 16 (%) 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.

Regal Beloit

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Regal Beloit are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Regal Beloit is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerson Electric and Regal Beloit

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

The idea behind Emerson Electric and Regal Beloit 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.