Correlation Between IRobot and Emerson Radio

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

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

Diversification Opportunities for IRobot and Emerson Radio

0.26

Correlation Coefficient

IRobot  Emerson Radio

Modest diversification

The 3 months correlation between IRobot and Emerson is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding iRobot and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio and IRobot 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 iRobot 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 IRobot i.e., IRobot and Emerson Radio go up and down completely randomly.

Pair Corralation between IRobot and Emerson Radio

Given the investment horizon of 90 days iRobot is expected to under-perform the Emerson Radio. In addition to that, IRobot is 2.51 times more volatile than Emerson Radio. It trades about -0.07 of its total potential returns per unit of risk. Emerson Radio is currently generating about 0.04 per unit of volatility. If you would invest  54.00  in Emerson Radio on January 26, 2024 and sell it today you would earn a total of  0.68  from holding Emerson Radio or generate 1.26% return on investment over 90 days.

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

iRobot  vs.  Emerson Radio

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 weak 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.

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.

Pair Trading with IRobot and Emerson Radio

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

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.