Correlation Between Embraer SA and Azul SA

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

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

Diversification Opportunities for Embraer SA and Azul SA

-0.12

Correlation Coefficient

Embraer SA  Azul SA

Good diversification

The 3 months correlation between Embraer and Azul is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA and Azul SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azul SA and Embraer SA 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 Embraer SA are associated (or correlated) with Azul SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azul SA has no effect on the direction of Embraer SA i.e., Embraer SA and Azul SA go up and down completely randomly.

Pair Corralation between Embraer SA and Azul SA

Assuming the 90 days trading horizon Embraer SA is expected to generate 0.68 times more return on investment than Azul SA. However, Embraer SA is 1.47 times less risky than Azul SA. It trades about 0.13 of its potential returns per unit of risk. Azul SA is currently generating about -0.04 per unit of risk. If you would invest  5,617  in Embraer SA on December 4, 2024 and sell it today you would earn a total of  1,355  from holding Embraer SA or generate 24.12% return on investment over 90 days.

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

Embraer SA  vs.  Azul SA

Embraer SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Embraer SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Azul SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Azul SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Embraer SA and Azul SA

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

The idea behind Embraer SA and Azul SA 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.