Correlation Between LB Foster and Emerson Radio

Can any of the company-specific risk be diversified away by investing in both LB Foster and Emerson Radio 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 Radio 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 Radio, you can compare the effects of market volatilities on LB Foster and Emerson Radio 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 Radio. Check out your portfolio center. Please also check ongoing floating volatility patterns of LB Foster and Emerson Radio.

Diversification Opportunities for LB Foster and Emerson Radio

-0.92

Correlation Coefficient

LB Foster  Emerson Radio

Pay attention - limited upside

The 3 months correlation between FSTR and Emerson is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio 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 Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Radio has no effect on the direction of LB Foster i.e., LB Foster and Emerson Radio go up and down completely randomly.

Pair Corralation between LB Foster and Emerson Radio

Given the investment horizon of 90 days LB Foster is expected to under-perform the Emerson Radio. But the stock apears to be less risky and, when comparing its historical volatility, LB Foster is 1.4 times less risky than Emerson Radio. The stock trades about -0.18 of its potential returns per unit of risk. The Emerson Radio is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  43.00  in Emerson Radio on September 24, 2024 and sell it today you would earn a total of  0.00  from holding Emerson Radio or generate 0.0% return on investment over 90 days.

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

LB Foster  vs.  Emerson Radio

LB Foster

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 13 (%) 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 Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with LB Foster and Emerson Radio

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

The idea behind LB Foster and Emerson Radio 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.