Correlation Between Summit Materials and EMCOR

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

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

Diversification Opportunities for Summit Materials and EMCOR

0.87

Correlation Coefficient

Summit Materials  EMCOR

Very poor diversification

The 3 months correlation between Summit and EMCOR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and EMCOR go up and down completely randomly.

Pair Corralation between Summit Materials and EMCOR

Considering the 90-day investment horizon Summit Materials is expected to generate 1.05 times less return on investment than EMCOR. But when comparing it to its historical volatility, Summit Materials is 1.01 times less risky than EMCOR. It trades about 0.09 of its potential returns per unit of risk. EMCOR Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  37,513  in EMCOR Group on September 13, 2024 and sell it today you would earn a total of  10,512  from holding EMCOR Group or generate 28.02% return on investment over 90 days.

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

Summit Materials  vs.  EMCOR Group

Summit Materials

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

EMCOR Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish primary indicators, EMCOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and EMCOR

The main advantage of trading using opposite Summit Materials and EMCOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.