Correlation Between SFL and EMCOR

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

By analyzing existing cross correlation between SFL Corporation and EMCOR Group, you can compare the effects of market volatilities on SFL and EMCOR 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 SFL with a short position of EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of SFL and EMCOR.

Diversification Opportunities for SFL and EMCOR

-0.59

Correlation Coefficient

SFL  EMCOR

Excellent diversification

The 3 months correlation between SFL and EMCOR is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding SFL Corp. and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and SFL 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 SFL Corporation are associated (or correlated) with EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of SFL i.e., SFL and EMCOR go up and down completely randomly.

Pair Corralation between SFL and EMCOR

Considering the 90-day investment horizon SFL Corporation is expected to under-perform the EMCOR. But the stock apears to be less risky and, when comparing its historical volatility, SFL Corporation is 1.37 times less risky than EMCOR. The stock trades about -0.13 of its potential returns per unit of risk. The EMCOR Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  43,071  in EMCOR Group on October 3, 2024 and sell it today you would earn a total of  2,319  from holding EMCOR Group or generate 5.38% return on investment over 90 days.

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

SFL Corp.  vs.  EMCOR Group

SFL Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SFL Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

EMCOR Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, EMCOR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SFL and EMCOR

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

The idea behind SFL Corporation and EMCOR Group 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.