Correlation Between Embraer SA and Lilium NV

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

Diversification Opportunities for Embraer SA and Lilium NV

-0.12

Correlation Coefficient

Embraer SA  Lilium NV

Good diversification

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

Pair Corralation between Embraer SA and Lilium NV

Considering the 90-day investment horizon Embraer SA is expected to generate 15.67 times less return on investment than Lilium NV. But when comparing it to its historical volatility, Embraer SA ADR is 15.02 times less risky than Lilium NV. It trades about 0.08 of its potential returns per unit of risk. Lilium NV is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Lilium NV on November 28, 2024 and sell it today you would lose (5.80) from holding Lilium NV or give up 52.73% of portfolio value over 90 days.

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

Embraer SA ADR  vs.  Lilium NV

Embraer SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 6 (%) 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.

Lilium NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lilium NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting essential indicators, Lilium NV displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Embraer SA and Lilium NV

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

The idea behind Embraer SA ADR and Lilium NV 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.