Correlation Between IRB Brasil and Embraer SA

Can any of the company-specific risk be diversified away by investing in both IRB Brasil and Embraer 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 IRB Brasil and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IRB Brasil Resseguros SA and Embraer SA, you can compare the effects of market volatilities on IRB Brasil and Embraer 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 IRB Brasil with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of IRB Brasil and Embraer SA.

Diversification Opportunities for IRB Brasil and Embraer SA

-0.63

Correlation Coefficient

IRB Brasil  Embraer SA

Excellent diversification

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

Pair Corralation between IRB Brasil and Embraer SA

Assuming the 90 days trading horizon IRB Brasil Resseguros SA is expected to under-perform the Embraer SA. In addition to that, IRB Brasil is 1.25 times more volatile than Embraer SA. It trades about -0.1 of its total potential returns per unit of risk. Embraer SA is currently generating about 0.13 per unit of volatility. If you would invest  4,804  in Embraer SA on September 9, 2024 and sell it today you would earn a total of  928.00  from holding Embraer SA or generate 19.32% return on investment over 90 days.

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

IRB Brasil Resseguros SA  vs.  Embraer SA

IRB Brasil Resseguros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IRB Brasil Resseguros SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Embraer SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Embraer SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IRB Brasil and Embraer SA

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

The idea behind IRB Brasil Resseguros SA and Embraer SA 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.