Correlation Between National Beverage and Emerson Electric

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

By analyzing existing cross correlation between National Beverage Corp and Emerson Electric, you can compare the effects of market volatilities on National Beverage and Emerson Electric 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 National Beverage with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and Emerson Electric.

Diversification Opportunities for National Beverage and Emerson Electric

0.43

Correlation Coefficient

National Beverage  Emerson Electric

Very weak diversification

The 3 months correlation between National and Emerson is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and National Beverage 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 National Beverage Corp are associated (or correlated) with Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of National Beverage i.e., National Beverage and Emerson Electric go up and down completely randomly.

Pair Corralation between National Beverage and Emerson Electric

Given the investment horizon of 90 days National Beverage Corp is expected to under-perform the Emerson Electric. In addition to that, National Beverage is 1.16 times more volatile than Emerson Electric. It trades about 0.0 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.09 per unit of volatility. If you would invest  8,636  in Emerson Electric on October 21, 2024 and sell it today you would earn a total of  3,817  from holding Emerson Electric or generate 44.2% return on investment over 90 days.

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

National Beverage Corp  vs.  Emerson Electric

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent 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.

Emerson Electric

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 9 (%) 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.

Pair Trading with National Beverage and Emerson Electric

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

The idea behind National Beverage Corp and Emerson Electric 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..