Correlation Between Schneider Electric and Emerson Electric

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

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

Diversification Opportunities for Schneider Electric and Emerson Electric

0.56

Correlation Coefficient

Schneider Electric  Emerson Electric

Very weak diversification

The 3 months correlation between Schneider and Emerson is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Schneider Electric SE and Emerson Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Schneider Electric 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 Schneider Electric SE 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 Schneider Electric i.e., Schneider Electric and Emerson Electric go up and down completely randomly.

Pair Corralation between Schneider Electric and Emerson Electric

Assuming the 90 days horizon Schneider Electric is expected to generate 2.43 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, Schneider Electric SE is 1.6 times less risky than Emerson Electric. It trades about 0.16 of its potential returns per unit of risk. Emerson Electric Co is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  8,931  in Emerson Electric Co on September 10, 2024 and sell it today you would earn a total of  3,597  from holding Emerson Electric Co or generate 40.28% return on investment over 90 days.

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

Schneider Electric SE  vs.  Emerson Electric Co

Schneider Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schneider Electric SE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Schneider Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Emerson Electric

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 18 (%) 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 Schneider Electric and Emerson Electric

The main advantage of trading using opposite Schneider Electric and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schneider Electric 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 Schneider Electric SE 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.

Check out your portfolio center.

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.