Correlation Between Emerson Electric and Vestas Wind

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

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

Diversification Opportunities for Emerson Electric and Vestas Wind

0.24

Correlation Coefficient

Emerson Electric  Vestas Wind

Modest diversification

The 3 months correlation between Emerson and Vestas is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Vestas Wind Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestas Wind Systems 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 Vestas Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestas Wind Systems has no effect on the direction of Emerson Electric i.e., Emerson Electric and Vestas Wind go up and down completely randomly.

Pair Corralation between Emerson Electric and Vestas Wind

Considering the 90-day investment horizon Emerson Electric is expected to under-perform the Vestas Wind. But the stock apears to be less risky and, when comparing its historical volatility, Emerson Electric is 2.34 times less risky than Vestas Wind. The stock trades about -0.11 of its potential returns per unit of risk. The Vestas Wind Systems is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,552  in Vestas Wind Systems on November 29, 2024 and sell it today you would lose (87.00) from holding Vestas Wind Systems or give up 5.61% of portfolio value over 90 days.

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

Emerson Electric  vs.  Vestas Wind Systems

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.

Vestas Wind Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vestas Wind is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Emerson Electric and Vestas Wind

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

The idea behind Emerson Electric and Vestas Wind Systems 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.