Correlation Between GE Aerospace and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both GE Aerospace 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 GE Aerospace and Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GE Aerospace and Emerson Electric, you can compare the effects of market volatilities on GE Aerospace 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 GE Aerospace with a short position of Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and Emerson Electric.
Diversification Opportunities for GE Aerospace and Emerson Electric
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GE Aerospace and Emerson is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and GE Aerospace 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 GE Aerospace 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 GE Aerospace i.e., GE Aerospace and Emerson Electric go up and down completely randomly.
Pair Corralation between GE Aerospace and Emerson Electric
Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 3.67 times more return on investment than Emerson Electric. However, GE Aerospace is 3.67 times more volatile than Emerson Electric. It trades about 0.21 of its potential returns per unit of risk. Emerson Electric is currently generating about -0.41 per unit of risk. If you would invest 14,536 in GE Aerospace on February 3, 2024 and sell it today you would earn a total of 1,728 from holding GE Aerospace or generate 11.89% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
GE Aerospace vs. Emerson Electric
Performance |
Timeline |
GE Aerospace |
Emerson Electric |
GE Aerospace and Emerson Electric Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GE Aerospace and Emerson Electric
The main advantage of trading using opposite GE Aerospace and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace 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.GE Aerospace vs. Illinois Tool Works | GE Aerospace vs. Dover | GE Aerospace vs. Cummins | GE Aerospace vs. Eaton PLC |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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