Correlation Between Terran Orbital and Embraer SA

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

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

Diversification Opportunities for Terran Orbital and Embraer SA

0.0

Correlation Coefficient

Terran Orbital  Embraer SA

Pay attention - limited upside

The 3 months correlation between Terran and Embraer is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Terran Orbital Corp 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 Terran Orbital 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 Terran Orbital Corp 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 Terran Orbital i.e., Terran Orbital and Embraer SA go up and down completely randomly.

Pair Corralation between Terran Orbital and Embraer SA

If you would invest  3,640  in Embraer SA ADR on December 29, 2024 and sell it today you would earn a total of  1,108  from holding Embraer SA ADR or generate 30.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Terran Orbital Corp  vs.  Embraer SA ADR

Terran Orbital Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Terran Orbital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Terran Orbital is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 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.

Pair Trading with Terran Orbital and Embraer SA

The main advantage of trading using opposite Terran Orbital and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Terran Orbital 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 Terran Orbital Corp 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.