Correlation Between Embraer SA and Airbus Group

Can any of the company-specific risk be diversified away by investing in both Embraer SA and Airbus Group 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 Airbus Group 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 Airbus Group SE, you can compare the effects of market volatilities on Embraer SA and Airbus Group 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 Airbus Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embraer SA and Airbus Group.

Diversification Opportunities for Embraer SA and Airbus Group

0.06

Correlation Coefficient

Embraer SA  Airbus Group

Significant diversification

The 3 months correlation between Embraer and Airbus is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Airbus Group SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airbus Group SE 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 Airbus Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airbus Group SE has no effect on the direction of Embraer SA i.e., Embraer SA and Airbus Group go up and down completely randomly.

Pair Corralation between Embraer SA and Airbus Group

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 1.09 times more return on investment than Airbus Group. However, Embraer SA is 1.09 times more volatile than Airbus Group SE. It trades about 0.05 of its potential returns per unit of risk. Airbus Group SE is currently generating about 0.05 per unit of risk. If you would invest  3,479  in Embraer SA ADR on September 4, 2024 and sell it today you would earn a total of  226.00  from holding Embraer SA ADR or generate 6.5% return on investment over 90 days.

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

Embraer SA ADR  vs.  Airbus Group SE

Embraer SA ADR

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Embraer SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Airbus Group SE

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Airbus Group SE are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Airbus Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Embraer SA and Airbus Group

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

The idea behind Embraer SA ADR and Airbus Group SE 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.