Correlation Between EMCOR and Bouygues
Can any of the company-specific risk be diversified away by investing in both EMCOR and Bouygues 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 EMCOR and Bouygues into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EMCOR Group and Bouygues SA ADR, you can compare the effects of market volatilities on EMCOR and Bouygues 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 EMCOR with a short position of Bouygues. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMCOR and Bouygues.
Diversification Opportunities for EMCOR and Bouygues
Poor diversification
The 3 months correlation between EMCOR and Bouygues is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Bouygues SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bouygues SA ADR and EMCOR 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 EMCOR Group are associated (or correlated) with Bouygues. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bouygues SA ADR has no effect on the direction of EMCOR i.e., EMCOR and Bouygues go up and down completely randomly.
Pair Corralation between EMCOR and Bouygues
Considering the 90-day investment horizon EMCOR Group is expected to generate 1.2 times more return on investment than Bouygues. However, EMCOR is 1.2 times more volatile than Bouygues SA ADR. It trades about -0.04 of its potential returns per unit of risk. Bouygues SA ADR is currently generating about -0.19 per unit of risk. If you would invest 36,215 in EMCOR Group on February 3, 2024 and sell it today you would lose (586.00) from holding EMCOR Group or give up 1.62% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
EMCOR Group vs. Bouygues SA ADR
Performance |
Timeline |
EMCOR Group |
Bouygues SA ADR |
EMCOR and Bouygues Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with EMCOR and Bouygues
The main advantage of trading using opposite EMCOR and Bouygues positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMCOR position performs unexpectedly, Bouygues 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 Bouygues will offset losses from the drop in Bouygues' long position.The idea behind EMCOR Group and Bouygues SA ADR 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.Check out your portfolio center.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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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