Correlation Between Airbus Group and Embraer SA

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

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

Diversification Opportunities for Airbus Group and Embraer SA

-0.03

Correlation Coefficient

Airbus Group  Embraer SA

Good diversification

The 3 months correlation between Airbus and Embraer is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Airbus Group NV 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 Airbus Group 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 Airbus Group NV 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 Airbus Group i.e., Airbus Group and Embraer SA go up and down completely randomly.

Pair Corralation between Airbus Group and Embraer SA

Assuming the 90 days horizon Airbus Group is expected to generate 2.77 times less return on investment than Embraer SA. But when comparing it to its historical volatility, Airbus Group NV is 1.45 times less risky than Embraer SA. It trades about 0.06 of its potential returns per unit of risk. Embraer SA ADR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,281  in Embraer SA ADR on September 3, 2024 and sell it today you would earn a total of  542.00  from holding Embraer SA ADR or generate 16.52% return on investment over 90 days.

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

Airbus Group NV  vs.  Embraer SA ADR

Airbus Group NV

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Airbus Group NV are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Airbus Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Embraer SA ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 8 (%) 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 Airbus Group and Embraer SA

The main advantage of trading using opposite Airbus Group and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Airbus Group 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 Airbus Group NV 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.