Correlation Between KBR and EMCOR

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

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

Diversification Opportunities for KBR and EMCOR

0.89

Correlation Coefficient

KBR  EMCOR

Very poor diversification

The 3 months correlation between KBR and EMCOR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding KBR Inc and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and KBR 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 KBR Inc are associated (or correlated) with EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of KBR i.e., KBR and EMCOR go up and down completely randomly.

Pair Corralation between KBR and EMCOR

Considering the 90-day investment horizon KBR is expected to generate 3.1 times less return on investment than EMCOR. But when comparing it to its historical volatility, KBR Inc is 2.05 times less risky than EMCOR. It trades about 0.23 of its potential returns per unit of risk. EMCOR Group is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  25,098  in EMCOR Group on February 18, 2024 and sell it today you would earn a total of  12,739  from holding EMCOR Group or generate 50.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

KBR Inc  vs.  EMCOR Group

KBR Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in KBR Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental drivers, KBR reported solid returns over the last few months and may actually be approaching a breakup point.

EMCOR Group

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, EMCOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KBR and EMCOR

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

The idea behind KBR Inc and EMCOR Group 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.