Correlation Between Emerson Electric and WEG SA

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

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

Diversification Opportunities for Emerson Electric and WEG SA

-0.42

Correlation Coefficient

Emerson Electric  WEG SA

Very good diversification

The 3 months correlation between Emerson and WEG is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and WEG SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEG SA ADR 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 WEG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEG SA ADR has no effect on the direction of Emerson Electric i.e., Emerson Electric and WEG SA go up and down completely randomly.

Pair Corralation between Emerson Electric and WEG SA

Considering the 90-day investment horizon Emerson Electric is expected to generate 0.79 times more return on investment than WEG SA. However, Emerson Electric is 1.27 times less risky than WEG SA. It trades about 0.14 of its potential returns per unit of risk. WEG SA ADR is currently generating about -0.05 per unit of risk. If you would invest  10,807  in Emerson Electric on October 23, 2024 and sell it today you would earn a total of  1,646  from holding Emerson Electric or generate 15.23% return on investment over 90 days.

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

Emerson Electric  vs.  WEG SA ADR

Emerson Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 11 (%) 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.

WEG SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WEG SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Emerson Electric and WEG SA

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

The idea behind Emerson Electric and WEG SA ADR 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.