Correlation Between Embraer SA and Astronics

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

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

Diversification Opportunities for Embraer SA and Astronics

-0.7

Correlation Coefficient

Embraer SA  Astronics

Excellent diversification

The 3 months correlation between Embraer and Astronics is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Astronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Astronics 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 ADR are associated (or correlated) with Astronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Astronics has no effect on the direction of Embraer SA i.e., Embraer SA and Astronics go up and down completely randomly.

Pair Corralation between Embraer SA and Astronics

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 0.73 times more return on investment than Astronics. However, Embraer SA ADR is 1.38 times less risky than Astronics. It trades about 0.1 of its potential returns per unit of risk. Astronics is currently generating about -0.13 per unit of risk. If you would invest  3,323  in Embraer SA ADR on August 30, 2024 and sell it today you would earn a total of  497.00  from holding Embraer SA ADR or generate 14.96% return on investment over 90 days.

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

Embraer SA ADR  vs.  Astronics

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.

Astronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Astronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Embraer SA and Astronics

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

The idea behind Embraer SA ADR and Astronics 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.