Correlation Between GM and Emerson Electric

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

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

Diversification Opportunities for GM and Emerson Electric

0.86

Correlation Coefficient

GM  Emerson Electric

Very poor diversification

The 3 months correlation between GM and Emerson is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and GM 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 General Motors 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 GM i.e., GM and Emerson Electric go up and down completely randomly.

Pair Corralation between GM and Emerson Electric

Allowing for the 90-day total investment horizon GM is expected to generate 1.85 times less return on investment than Emerson Electric. In addition to that, GM is 1.08 times more volatile than Emerson Electric Co. It trades about 0.1 of its total potential returns per unit of risk. Emerson Electric Co is currently generating about 0.2 per unit of volatility. If you would invest  9,412  in Emerson Electric Co on September 2, 2024 and sell it today you would earn a total of  3,164  from holding Emerson Electric Co or generate 33.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.97%
Values	Daily Returns

General Motors  vs.  Emerson Electric Co

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Emerson Electric

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Emerson Electric

The main advantage of trading using opposite GM and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and Emerson Electric Co 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.