Correlation Between Embraer SA and Park Electrochemical

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

Diversification Opportunities for Embraer SA and Park Electrochemical

-0.63

Correlation Coefficient

Embraer SA  Park Electrochemical

Excellent diversification

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

Pair Corralation between Embraer SA and Park Electrochemical

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 2.07 times more return on investment than Park Electrochemical. However, Embraer SA is 2.07 times more volatile than Park Electrochemical. It trades about 0.16 of its potential returns per unit of risk. Park Electrochemical is currently generating about -0.01 per unit of risk. If you would invest  3,645  in Embraer SA ADR on December 27, 2024 and sell it today you would earn a total of  1,205  from holding Embraer SA ADR or generate 33.06% 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.  Park Electrochemical

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 12 (%) 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.

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Park Electrochemical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Embraer SA and Park Electrochemical

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

The idea behind Embraer SA ADR and Park Electrochemical 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.