Correlation Between Tyson Foods and EMCOR

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

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

Diversification Opportunities for Tyson Foods and EMCOR

0.7

Correlation Coefficient

Tyson Foods  EMCOR

Poor diversification

The 3 months correlation between Tyson and EMCOR is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tyson Foods and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and Tyson Foods 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 Tyson Foods 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 Tyson Foods i.e., Tyson Foods and EMCOR go up and down completely randomly.

Pair Corralation between Tyson Foods and EMCOR

Considering the 90-day investment horizon Tyson Foods is expected to under-perform the EMCOR. But the stock apears to be less risky and, when comparing its historical volatility, Tyson Foods is 1.44 times less risky than EMCOR. The stock trades about -0.11 of its potential returns per unit of risk. The EMCOR Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  45,235  in EMCOR Group on October 14, 2024 and sell it today you would earn a total of  1,469  from holding EMCOR Group or generate 3.25% return on investment over 90 days.

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

Tyson Foods  vs.  EMCOR Group

Tyson Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

EMCOR Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, EMCOR is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tyson Foods and EMCOR

The main advantage of trading using opposite Tyson Foods and EMCOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tyson Foods 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 Tyson Foods 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.