Correlation Between Emerson Electric and TPI Composites

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

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

Diversification Opportunities for Emerson Electric and TPI Composites

0.53

Correlation Coefficient

Emerson Electric  TPI Composites

Very weak diversification

The 3 months correlation between Emerson and TPI is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and TPI Composites in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPI Composites 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 TPI Composites. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPI Composites has no effect on the direction of Emerson Electric i.e., Emerson Electric and TPI Composites go up and down completely randomly.

Pair Corralation between Emerson Electric and TPI Composites

Considering the 90-day investment horizon Emerson Electric is expected to generate 0.24 times more return on investment than TPI Composites. However, Emerson Electric is 4.15 times less risky than TPI Composites. It trades about -0.09 of its potential returns per unit of risk. TPI Composites is currently generating about -0.14 per unit of risk. If you would invest  12,341  in Emerson Electric on December 21, 2024 and sell it today you would lose (1,161) from holding Emerson Electric or give up 9.41% of portfolio value over 90 days.

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

Emerson Electric  vs.  TPI Composites

Emerson Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emerson Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

TPI Composites

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPI Composites has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Emerson Electric and TPI Composites

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

The idea behind Emerson Electric and TPI Composites 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.