Correlation Between Embraer SA and Heico

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

Diversification Opportunities for Embraer SA and Heico

0.78

Correlation Coefficient

Embraer SA  Heico

Poor diversification

The 3 months correlation between Embraer and Heico is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Heico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heico 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 Heico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heico has no effect on the direction of Embraer SA i.e., Embraer SA and Heico go up and down completely randomly.

Pair Corralation between Embraer SA and Heico

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 1.49 times more return on investment than Heico. However, Embraer SA is 1.49 times more volatile than Heico. It trades about 0.15 of its potential returns per unit of risk. Heico is currently generating about 0.1 per unit of risk. If you would invest  3,640  in Embraer SA ADR on December 28, 2024 and sell it today you would earn a total of  1,108  from holding Embraer SA ADR or generate 30.44% return on investment over 90 days.

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

Embraer SA ADR  vs.  Heico

Embraer SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 11 (%) 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.

Heico

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heico are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Heico demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Embraer SA and Heico

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

The idea behind Embraer SA ADR and Heico 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.