Correlation Between Embraer SA and Thales SA

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

Diversification Opportunities for Embraer SA and Thales SA

0.86

Correlation Coefficient

Embraer SA  Thales SA

Very poor diversification

The 3 months correlation between Embraer and Thales is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Thales SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thales SA ADR 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 Thales SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thales SA ADR has no effect on the direction of Embraer SA i.e., Embraer SA and Thales SA go up and down completely randomly.

Pair Corralation between Embraer SA and Thales SA

Considering the 90-day investment horizon Embraer SA is expected to generate 2.44 times less return on investment than Thales SA. But when comparing it to its historical volatility, Embraer SA ADR is 1.09 times less risky than Thales SA. It trades about 0.13 of its potential returns per unit of risk. Thales SA ADR is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,859  in Thales SA ADR on December 28, 2024 and sell it today you would earn a total of  2,466  from holding Thales SA ADR or generate 86.25% return on investment over 90 days.

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

Embraer SA ADR  vs.  Thales SA ADR

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 10 (%) 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.

Thales SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thales SA ADR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Thales SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Embraer SA and Thales SA

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

The idea behind Embraer SA ADR and Thales SA ADR 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.