Correlation Between Emerson Electric and Alfa Laval

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

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

Diversification Opportunities for Emerson Electric and Alfa Laval

0.71

Correlation Coefficient

Emerson Electric  Alfa Laval

Poor diversification

The 3 months correlation between Emerson and Alfa is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Alfa Laval AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Laval AB and Emerson Electric 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 Emerson Electric are associated (or correlated) with Alfa Laval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Laval AB has no effect on the direction of Emerson Electric i.e., Emerson Electric and Alfa Laval go up and down completely randomly.

Pair Corralation between Emerson Electric and Alfa Laval

Considering the 90-day investment horizon Emerson Electric is expected to under-perform the Alfa Laval. But the stock apears to be less risky and, when comparing its historical volatility, Emerson Electric is 3.45 times less risky than Alfa Laval. The stock trades about -0.22 of its potential returns per unit of risk. The Alfa Laval AB is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,832  in Alfa Laval AB on January 30, 2024 and sell it today you would earn a total of  496.00  from holding Alfa Laval AB or generate 12.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Emerson Electric  vs.  Alfa Laval AB

Emerson Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Emerson Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Alfa Laval AB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Laval AB are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Alfa Laval showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerson Electric and Alfa Laval

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

The idea behind Emerson Electric and Alfa Laval AB 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.