Correlation Between Emerson Electric and Great Elm

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

By analyzing existing cross correlation between Emerson Electric and Great Elm Capital, you can compare the effects of market volatilities on Emerson Electric and Great Elm 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 Great Elm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Emerson Electric and Great Elm.

Diversification Opportunities for Emerson Electric and Great Elm

0.91

Correlation Coefficient

Emerson Electric  Great Elm

Almost no diversification

The 3 months correlation between Emerson and Great is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Electric and Great Elm Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Elm Capital 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 Great Elm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Elm Capital has no effect on the direction of Emerson Electric i.e., Emerson Electric and Great Elm go up and down completely randomly.

Pair Corralation between Emerson Electric and Great Elm

Considering the 90-day investment horizon Emerson Electric is expected to generate 4.43 times more return on investment than Great Elm. However, Emerson Electric is 4.43 times more volatile than Great Elm Capital. It trades about 0.32 of its potential returns per unit of risk. Great Elm Capital is currently generating about 0.14 per unit of risk. If you would invest  10,790  in Emerson Electric on May 4, 2025 and sell it today you would earn a total of  3,388  from holding Emerson Electric or generate 31.4% return on investment over 90 days.

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

Emerson Electric  vs.  Great Elm Capital

Emerson Electric

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Electric are ranked lower than 25 (%) 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.

Great Elm Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Great Elm Capital are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Great Elm is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Emerson Electric and Great Elm

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

The idea behind Emerson Electric and Great Elm Capital 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.