Correlation Between Quanex Building and Emerson Radio

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

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

Diversification Opportunities for Quanex Building and Emerson Radio

0.35

Correlation Coefficient

Quanex Building  Emerson Radio

Weak diversification

The 3 months correlation between Quanex and Emerson is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Quanex Building Products and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio and Quanex Building 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 Quanex Building Products 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 Quanex Building i.e., Quanex Building and Emerson Radio go up and down completely randomly.

Pair Corralation between Quanex Building and Emerson Radio

Allowing for the 90-day total investment horizon Quanex Building Products is expected to generate 0.9 times more return on investment than Emerson Radio. However, Quanex Building Products is 1.11 times less risky than Emerson Radio. It trades about 0.0 of its potential returns per unit of risk. Emerson Radio is currently generating about -0.02 per unit of risk. If you would invest  2,607  in Quanex Building Products on October 4, 2024 and sell it today you would lose (183.00) from holding Quanex Building Products or give up 7.02% of portfolio value over 90 days.

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

Quanex Building Products  vs.  Emerson Radio

Quanex Building Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quanex Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Quanex Building and Emerson Radio

The main advantage of trading using opposite Quanex Building and Emerson Radio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quanex Building 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 Quanex Building Products 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.