Correlation Between Emerson Radio and IRobot

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

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

Diversification Opportunities for Emerson Radio and IRobot

0.3

Correlation Coefficient

Emerson Radio  IRobot

Weak diversification

The 3 months correlation between Emerson and IRobot is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Radio and iRobot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iRobot and Emerson Radio 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 Radio are associated (or correlated) with IRobot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iRobot has no effect on the direction of Emerson Radio i.e., Emerson Radio and IRobot go up and down completely randomly.

Pair Corralation between Emerson Radio and IRobot

Considering the 90-day investment horizon Emerson Radio is expected to generate 0.51 times more return on investment than IRobot. However, Emerson Radio is 1.95 times less risky than IRobot. It trades about 0.02 of its potential returns per unit of risk. iRobot is currently generating about -0.11 per unit of risk. If you would invest  53.00  in Emerson Radio on January 25, 2024 and sell it today you would earn a total of  2.00  from holding Emerson Radio or generate 3.77% return on investment over 90 days.

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

Emerson Radio  vs.  iRobot

Emerson Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Emerson Radio is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

iRobot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iRobot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Emerson Radio and IRobot

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

The idea behind Emerson Radio and iRobot 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.