Correlation Between Emerson Electric and John Wiley

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

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

Diversification Opportunities for Emerson Electric and John Wiley

0.33

Correlation Coefficient

Emerson Electric  John Wiley

Weak diversification

The 3 months correlation between Emerson and John is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and John Wiley Sons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Wiley Sons 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 John Wiley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Wiley Sons has no effect on the direction of Emerson Electric i.e., Emerson Electric and John Wiley go up and down completely randomly.

Pair Corralation between Emerson Electric and John Wiley

Considering the 90-day investment horizon Emerson Electric is expected to generate 87.64 times less return on investment than John Wiley. But when comparing it to its historical volatility, Emerson Electric is 56.63 times less risky than John Wiley. It trades about 0.05 of its potential returns per unit of risk. John Wiley Sons is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,846  in John Wiley Sons on September 20, 2024 and sell it today you would earn a total of  585.00  from holding John Wiley Sons or generate 15.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.2%
Values	Daily Returns

Emerson Electric  vs.  John Wiley Sons

Emerson Electric

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 15 (%) 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.

John Wiley Sons

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Emerson Electric and John Wiley

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

The idea behind Emerson Electric and John Wiley Sons 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 Transaction History module to view history of all your transactions and understand their impact on performance.