Correlation Between Comfort Systems and EMCOR

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

By analyzing existing cross correlation between Comfort Systems USA and EMCOR Group, you can compare the effects of market volatilities on Comfort Systems and EMCOR 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 Comfort Systems with a short position of EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Comfort Systems and EMCOR.

Diversification Opportunities for Comfort Systems and EMCOR

0.97

Correlation Coefficient

Comfort Systems  EMCOR

Almost no diversification

The 3 months correlation between Comfort and EMCOR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Comfort Systems USA and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and Comfort Systems 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 Comfort Systems USA are associated (or correlated) with EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Comfort Systems i.e., Comfort Systems and EMCOR go up and down completely randomly.

Pair Corralation between Comfort Systems and EMCOR

Considering the 90-day investment horizon Comfort Systems USA is expected to generate 1.46 times more return on investment than EMCOR. However, Comfort Systems is 1.46 times more volatile than EMCOR Group. It trades about 0.28 of its potential returns per unit of risk. EMCOR Group is currently generating about 0.32 per unit of risk. If you would invest  31,457  in Comfort Systems USA on August 31, 2024 and sell it today you would earn a total of  17,208  from holding Comfort Systems USA or generate 54.7% return on investment over 90 days.

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

Comfort Systems USA  vs.  EMCOR Group

Comfort Systems USA

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Comfort Systems USA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Comfort Systems showed solid returns over the last few months and may actually be approaching a breakup point.

EMCOR Group

Risk-Adjusted Performance

25 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, EMCOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Comfort Systems and EMCOR

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

The idea behind Comfort Systems USA and EMCOR Group 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.