Correlation Between Emerson Electric and KINDER

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

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

Diversification Opportunities for Emerson Electric and KINDER

-0.21

Correlation Coefficient

Emerson Electric  KINDER

Very good diversification

The 3 months correlation between Emerson and KINDER is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and KINDER MORGAN ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN ENERGY 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 KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN ENERGY has no effect on the direction of Emerson Electric i.e., Emerson Electric and KINDER go up and down completely randomly.

Pair Corralation between Emerson Electric and KINDER

Considering the 90-day investment horizon Emerson Electric is expected to under-perform the KINDER. In addition to that, Emerson Electric is 1.88 times more volatile than KINDER MORGAN ENERGY. It trades about -0.1 of its total potential returns per unit of risk. KINDER MORGAN ENERGY is currently generating about 0.03 per unit of volatility. If you would invest  8,749  in KINDER MORGAN ENERGY on December 24, 2024 and sell it today you would earn a total of  83.00  from holding KINDER MORGAN ENERGY or generate 0.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	65.57%
Values	Daily Returns

Emerson Electric  vs.  KINDER MORGAN ENERGY

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.

KINDER MORGAN ENERGY

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KINDER MORGAN ENERGY are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KINDER 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 KINDER

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

The idea behind Emerson Electric and KINDER MORGAN ENERGY 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.