Correlation Between Embraer SA and Textron

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

Diversification Opportunities for Embraer SA and Textron

-0.17

Correlation Coefficient

Embraer SA  Textron

Good diversification

The 3 months correlation between Embraer and Textron is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Textron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Textron 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 Textron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Textron has no effect on the direction of Embraer SA i.e., Embraer SA and Textron go up and down completely randomly.

Pair Corralation between Embraer SA and Textron

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 1.63 times more return on investment than Textron. However, Embraer SA is 1.63 times more volatile than Textron. It trades about 0.11 of its potential returns per unit of risk. Textron is currently generating about 0.01 per unit of risk. If you would invest  1,270  in Embraer SA ADR on October 27, 2024 and sell it today you would earn a total of  2,880  from holding Embraer SA ADR or generate 226.77% return on investment over 90 days.

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

Embraer SA ADR  vs.  Textron

Embraer SA ADR

Risk-Adjusted Performance

11 of 100

OK

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.

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Embraer SA and Textron

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

The idea behind Embraer SA ADR and Textron 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.