Correlation Between Embraer SA and IRB Brasil

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

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

Diversification Opportunities for Embraer SA and IRB Brasil

-0.63

Correlation Coefficient

Embraer SA  IRB Brasil

Excellent diversification

The 3 months correlation between Embraer and IRB is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA and IRB Brasil Resseguros SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IRB Brasil Resseguros 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 IRB Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IRB Brasil Resseguros has no effect on the direction of Embraer SA i.e., Embraer SA and IRB Brasil go up and down completely randomly.

Pair Corralation between Embraer SA and IRB Brasil

Assuming the 90 days trading horizon Embraer SA is expected to generate 0.8 times more return on investment than IRB Brasil. However, Embraer SA is 1.25 times less risky than IRB Brasil. It trades about 0.12 of its potential returns per unit of risk. IRB Brasil Resseguros SA is currently generating about -0.1 per unit of risk. If you would invest  4,860  in Embraer SA on September 10, 2024 and sell it today you would earn a total of  872.00  from holding Embraer SA or generate 17.94% return on investment over 90 days.

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

Embraer SA  vs.  IRB Brasil Resseguros SA

Embraer SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA are ranked lower than 9 (%) 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.

IRB Brasil Resseguros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IRB Brasil Resseguros SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Embraer SA and IRB Brasil

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

The idea behind Embraer SA and IRB Brasil Resseguros 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.