Correlation Between Omega Flex and Emerson Electric

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

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

Diversification Opportunities for Omega Flex and Emerson Electric

-0.22

Correlation Coefficient

Omega Flex  Emerson Electric

Very good diversification

The 3 months correlation between Omega and Emerson is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Omega Flex and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Omega Flex 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 Omega Flex 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 Omega Flex i.e., Omega Flex and Emerson Electric go up and down completely randomly.

Pair Corralation between Omega Flex and Emerson Electric

Given the investment horizon of 90 days Omega Flex is expected to generate 16.26 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, Omega Flex is 1.54 times less risky than Emerson Electric. It trades about 0.02 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  10,813  in Emerson Electric on February 21, 2024 and sell it today you would earn a total of  557.00  from holding Emerson Electric or generate 5.15% return on investment over 90 days.

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

Omega Flex  vs.  Emerson Electric

Omega Flex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Omega Flex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Omega Flex is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Emerson Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady primary indicators, Emerson Electric may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Omega Flex and Emerson Electric

The main advantage of trading using opposite Omega Flex and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Omega Flex 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.

The idea behind Omega Flex and Emerson Electric 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.