Correlation Between Aerojet Rocketdyne and Embraer SA

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

By analyzing existing cross correlation between Aerojet Rocketdyne Holdings and Embraer SA ADR, you can compare the effects of market volatilities on Aerojet Rocketdyne and Embraer SA 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 Aerojet Rocketdyne with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerojet Rocketdyne and Embraer SA.

Diversification Opportunities for Aerojet Rocketdyne and Embraer SA

-0.76

Correlation Coefficient

Aerojet Rocketdyne  Embraer SA

Pay attention - limited upside

The 3 months correlation between Aerojet and Embraer is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Aerojet Rocketdyne Holdings and Embraer SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embraer SA ADR and Aerojet Rocketdyne 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 Aerojet Rocketdyne Holdings are associated (or correlated) with Embraer SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embraer SA ADR has no effect on the direction of Aerojet Rocketdyne i.e., Aerojet Rocketdyne and Embraer SA go up and down completely randomly.

Pair Corralation between Aerojet Rocketdyne and Embraer SA

If you would invest  2,415  in Embraer SA ADR on October 12, 2024 and sell it today you would earn a total of  1,349  from holding Embraer SA ADR or generate 55.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	0.53%
Values	Daily Returns

Aerojet Rocketdyne Holdings  vs.  Embraer SA ADR

Aerojet Rocketdyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aerojet Rocketdyne Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aerojet Rocketdyne is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Embraer SA ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Embraer SA revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aerojet Rocketdyne and Embraer SA

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

The idea behind Aerojet Rocketdyne Holdings and Embraer 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.