Correlation Between SUMITOMO P and Emerson Electric

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

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

Diversification Opportunities for SUMITOMO P and Emerson Electric

-0.35

Correlation Coefficient

SUMITOMO P  Emerson Electric

Very good diversification

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

Pair Corralation between SUMITOMO P and Emerson Electric

Assuming the 90 days trading horizon SUMITOMO P SP is expected to under-perform the Emerson Electric. But the stock apears to be less risky and, when comparing its historical volatility, SUMITOMO P SP is 1.58 times less risky than Emerson Electric. The stock trades about -0.05 of its potential returns per unit of risk. The Emerson Electric Co is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  9,412  in Emerson Electric Co on September 2, 2024 and sell it today you would earn a total of  3,164  from holding Emerson Electric Co or generate 33.62% return on investment over 90 days.

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

SUMITOMO P SP  vs.  Emerson Electric Co

SUMITOMO P SP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SUMITOMO P SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, SUMITOMO P is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Emerson Electric

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric Co are ranked lower than 15 (%) 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 SUMITOMO P and Emerson Electric

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

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.