Correlation Between Ametek and Emerson Electric

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

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

Diversification Opportunities for Ametek and Emerson Electric

0.92

Correlation Coefficient

Ametek  Emerson Electric

Almost no diversification

The 3 months correlation between Ametek and Emerson is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Ametek Inc and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric and Ametek 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 Ametek Inc 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 Ametek i.e., Ametek and Emerson Electric go up and down completely randomly.

Pair Corralation between Ametek and Emerson Electric

Considering the 90-day investment horizon Ametek is expected to generate 1.07 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, Ametek Inc is 1.07 times less risky than Emerson Electric. It trades about 0.35 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  10,807  in Emerson Electric on August 24, 2024 and sell it today you would earn a total of  2,020  from holding Emerson Electric or generate 18.69% return on investment over 90 days.

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

Ametek Inc  vs.  Emerson Electric

Ametek Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ametek Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Ametek exhibited solid returns over the last few months and may actually be approaching a breakup point.

Emerson Electric

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 14 (%) 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.

Pair Trading with Ametek and Emerson Electric

The main advantage of trading using opposite Ametek and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ametek 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 Ametek Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.