Correlation Between Transdigm Group and Embraer SA

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

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

Diversification Opportunities for Transdigm Group and Embraer SA

-0.68

Correlation Coefficient

Transdigm Group  Embraer SA

Excellent diversification

The 3 months correlation between Transdigm and Embraer is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Transdigm Group Incorporated 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 Transdigm Group 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 Transdigm Group Incorporated 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 Transdigm Group i.e., Transdigm Group and Embraer SA go up and down completely randomly.

Pair Corralation between Transdigm Group and Embraer SA

Considering the 90-day investment horizon Transdigm Group is expected to generate 1.57 times less return on investment than Embraer SA. But when comparing it to its historical volatility, Transdigm Group Incorporated is 1.64 times less risky than Embraer SA. It trades about 0.11 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	Weak
Accuracy	99.8%
Values	Daily Returns

Transdigm Group Incorporated  vs.  Embraer SA ADR

Transdigm Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transdigm Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 Transdigm Group and Embraer SA

The main advantage of trading using opposite Transdigm Group and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transdigm Group 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 Transdigm Group Incorporated 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.