Correlation Between Emerson Radio and Southwest Gas

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

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

Diversification Opportunities for Emerson Radio and Southwest Gas

-0.15

Correlation Coefficient

Emerson Radio  Southwest Gas

Good diversification

The 3 months correlation between Emerson and Southwest is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Radio and Southwest Gas Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southwest Gas Holdings and Emerson Radio 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 Emerson Radio are associated (or correlated) with Southwest Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southwest Gas Holdings has no effect on the direction of Emerson Radio i.e., Emerson Radio and Southwest Gas go up and down completely randomly.

Pair Corralation between Emerson Radio and Southwest Gas

Considering the 90-day investment horizon Emerson Radio is expected to under-perform the Southwest Gas. In addition to that, Emerson Radio is 2.51 times more volatile than Southwest Gas Holdings. It trades about -0.03 of its total potential returns per unit of risk. Southwest Gas Holdings is currently generating about 0.11 per unit of volatility. If you would invest  7,124  in Southwest Gas Holdings on September 3, 2024 and sell it today you would earn a total of  692.00  from holding Southwest Gas Holdings or generate 9.71% return on investment over 90 days.

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

Emerson Radio  vs.  Southwest Gas Holdings

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Southwest Gas Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Gas Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southwest Gas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Emerson Radio and Southwest Gas

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

The idea behind Emerson Radio and Southwest Gas Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.