Correlation Between Emerson Electric and ENTERGY

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

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

Diversification Opportunities for Emerson Electric and ENTERGY

-0.53

Correlation Coefficient

Emerson Electric  ENTERGY

Excellent diversification

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

Pair Corralation between Emerson Electric and ENTERGY

Considering the 90-day investment horizon Emerson Electric is expected to generate 70.97 times less return on investment than ENTERGY. But when comparing it to its historical volatility, Emerson Electric is 47.77 times less risky than ENTERGY. It trades about 0.04 of its potential returns per unit of risk. ENTERGY TEX INC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,586  in ENTERGY TEX INC on October 9, 2024 and sell it today you would earn a total of  46.00  from holding ENTERGY TEX INC or generate 0.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	72.94%
Values	Daily Returns

Emerson Electric  vs.  ENTERGY TEX INC

Emerson Electric

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 8 (%) 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.

ENTERGY TEX INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENTERGY TEX INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ENTERGY is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Emerson Electric and ENTERGY

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

The idea behind Emerson Electric and ENTERGY TEX INC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.