Correlation Between Mastercard Incorporated and Emerson Electric

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

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

Diversification Opportunities for Mastercard Incorporated and Emerson Electric

0.65

Correlation Coefficient

Mastercard Incorporated  Emerson Electric

Poor diversification

The 3 months correlation between Mastercard and Emerson is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard Incorporated and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Mastercard Incorporated 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 Mastercard Incorporated 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 Mastercard Incorporated i.e., Mastercard Incorporated and Emerson Electric go up and down completely randomly.

Pair Corralation between Mastercard Incorporated and Emerson Electric

Assuming the 90 days horizon Mastercard Incorporated is expected to generate 19.72 times more return on investment than Emerson Electric. However, Mastercard Incorporated is 19.72 times more volatile than Emerson Electric Co. It trades about 0.06 of its potential returns per unit of risk. Emerson Electric Co is currently generating about 0.13 per unit of risk. If you would invest  997,155  in Mastercard Incorporated on October 15, 2024 and sell it today you would earn a total of  48,429  from holding Mastercard Incorporated or generate 4.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Mastercard Incorporated  vs.  Emerson Electric Co

Mastercard Incorporated

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Mastercard Incorporated is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Emerson Electric

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Emerson Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mastercard Incorporated and Emerson Electric

The main advantage of trading using opposite Mastercard Incorporated and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard Incorporated 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 Mastercard Incorporated 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.