Correlation Between LB Foster and Emerson Electric

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

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

Diversification Opportunities for LB Foster and Emerson Electric

0.88

Correlation Coefficient

LB Foster  Emerson Electric

Very poor diversification

The 3 months correlation between FSTR and Emerson is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and LB Foster 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 LB Foster 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 LB Foster i.e., LB Foster and Emerson Electric go up and down completely randomly.

Pair Corralation between LB Foster and Emerson Electric

Given the investment horizon of 90 days LB Foster is expected to generate 2.01 times more return on investment than Emerson Electric. However, LB Foster is 2.01 times more volatile than Emerson Electric. It trades about 0.07 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.08 per unit of risk. If you would invest  2,127  in LB Foster on September 29, 2024 and sell it today you would earn a total of  600.00  from holding LB Foster or generate 28.21% return on investment over 90 days.

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

LB Foster  vs.  Emerson Electric

LB Foster

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

Emerson Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 10 (%) 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 LB Foster and Emerson Electric

The main advantage of trading using opposite LB Foster and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LB Foster 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 LB Foster 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.