Correlation Between VirTra and Embraer SA

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

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

Diversification Opportunities for VirTra and Embraer SA

-0.56

Correlation Coefficient

VirTra  Embraer SA

Excellent diversification

The 3 months correlation between VirTra and Embraer is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding VirTra Inc 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 VirTra 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 VirTra Inc 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 VirTra i.e., VirTra and Embraer SA go up and down completely randomly.

Pair Corralation between VirTra and Embraer SA

Given the investment horizon of 90 days VirTra Inc is expected to under-perform the Embraer SA. But the stock apears to be less risky and, when comparing its historical volatility, VirTra Inc is 1.92 times less risky than Embraer SA. The stock trades about -0.16 of its potential returns per unit of risk. The Embraer SA ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,049  in Embraer SA ADR on November 29, 2024 and sell it today you would earn a total of  240.00  from holding Embraer SA ADR or generate 5.93% return on investment over 90 days.

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

VirTra Inc  vs.  Embraer SA ADR

VirTra Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days VirTra Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Embraer SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 6 (%) 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 VirTra and Embraer SA

The main advantage of trading using opposite VirTra and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VirTra 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 VirTra Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.