Correlation Between Arconic and Emerson Radio

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

By analyzing existing cross correlation between Arconic 59 percent and Emerson Radio, you can compare the effects of market volatilities on Arconic and Emerson Radio 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 Arconic with a short position of Emerson Radio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arconic and Emerson Radio.

Diversification Opportunities for Arconic and Emerson Radio

0.09

Correlation Coefficient

Arconic  Emerson Radio

Significant diversification

The 3 months correlation between Arconic and Emerson is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Arconic 59 percent and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio and Arconic 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 Arconic 59 percent are associated (or correlated) with Emerson Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Radio has no effect on the direction of Arconic i.e., Arconic and Emerson Radio go up and down completely randomly.

Pair Corralation between Arconic and Emerson Radio

Assuming the 90 days trading horizon Arconic 59 percent is expected to under-perform the Emerson Radio. But the bond apears to be less risky and, when comparing its historical volatility, Arconic 59 percent is 12.77 times less risky than Emerson Radio. The bond trades about -0.06 of its potential returns per unit of risk. The Emerson Radio is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  50.00  in Emerson Radio on October 20, 2024 and sell it today you would earn a total of  1.00  from holding Emerson Radio or generate 2.0% return on investment over 90 days.

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

Arconic 59 percent  vs.  Emerson Radio

Arconic 59 percent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arconic 59 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Arconic is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Emerson Radio

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Radio are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Emerson Radio may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Arconic and Emerson Radio

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

The idea behind Arconic 59 percent and Emerson Radio 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.