Correlation Between L3Harris Technologies and Embraer SA

Can any of the company-specific risk be diversified away by investing in both L3Harris Technologies 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 L3Harris Technologies and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between L3Harris Technologies and Embraer SA ADR, you can compare the effects of market volatilities on L3Harris Technologies 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 L3Harris Technologies with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of L3Harris Technologies and Embraer SA.

Diversification Opportunities for L3Harris Technologies and Embraer SA

-0.13

Correlation Coefficient

L3Harris Technologies  Embraer SA

Good diversification

The 3 months correlation between L3Harris and Embraer is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding L3Harris Technologies and Embraer SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embraer SA ADR and L3Harris Technologies 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 L3Harris Technologies 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 ADR has no effect on the direction of L3Harris Technologies i.e., L3Harris Technologies and Embraer SA go up and down completely randomly.

Pair Corralation between L3Harris Technologies and Embraer SA

Considering the 90-day investment horizon L3Harris Technologies is expected to generate 7.65 times less return on investment than Embraer SA. But when comparing it to its historical volatility, L3Harris Technologies is 1.79 times less risky than Embraer SA. It trades about 0.02 of its potential returns per unit of risk. Embraer SA ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,251  in Embraer SA ADR on October 11, 2024 and sell it today you would earn a total of  2,513  from holding Embraer SA ADR or generate 200.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

L3Harris Technologies  vs.  Embraer SA ADR

L3Harris Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days L3Harris Technologies 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 technical indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Embraer SA ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 8 (%) 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.

Pair Trading with L3Harris Technologies and Embraer SA

The main advantage of trading using opposite L3Harris Technologies and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L3Harris Technologies 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 L3Harris Technologies and Embraer 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.