Correlation Between DigitalOcean Holdings and Embraer SA

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

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

Diversification Opportunities for DigitalOcean Holdings and Embraer SA

0.19

Correlation Coefficient

DigitalOcean Holdings  Embraer SA

Average diversification

The 3 months correlation between DigitalOcean and Embraer is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding DigitalOcean 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 DigitalOcean Holdings 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 DigitalOcean 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 DigitalOcean Holdings i.e., DigitalOcean Holdings and Embraer SA go up and down completely randomly.

Pair Corralation between DigitalOcean Holdings and Embraer SA

Given the investment horizon of 90 days DigitalOcean Holdings is expected to generate 5.75 times less return on investment than Embraer SA. In addition to that, DigitalOcean Holdings is 1.04 times more volatile than Embraer SA ADR. It trades about 0.03 of its total potential returns per unit of risk. Embraer SA ADR is currently generating about 0.21 per unit of volatility. If you would invest  3,658  in Embraer SA ADR on December 24, 2024 and sell it today you would earn a total of  1,606  from holding Embraer SA ADR or generate 43.9% return on investment over 90 days.

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

DigitalOcean Holdings  vs.  Embraer SA ADR

DigitalOcean Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DigitalOcean Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, DigitalOcean Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Embraer SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 16 (%) 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 DigitalOcean Holdings and Embraer SA

The main advantage of trading using opposite DigitalOcean Holdings and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DigitalOcean Holdings 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 DigitalOcean 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.