Correlation Between BAE Systems and Embraer SA
Can any of the company-specific risk be diversified away by investing in both BAE Systems 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 BAE Systems and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BAE Systems PLC and Embraer SA ADR, you can compare the effects of market volatilities on BAE Systems 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 BAE Systems with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and Embraer SA.
Diversification Opportunities for BAE Systems and Embraer SA
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between BAE and Embraer is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC 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 BAE Systems 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 BAE Systems PLC 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 BAE Systems i.e., BAE Systems and Embraer SA go up and down completely randomly.
Pair Corralation between BAE Systems and Embraer SA
Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Embraer SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 1.86 times less risky than Embraer SA. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Embraer SA ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,875 in Embraer SA ADR on August 25, 2024 and sell it today you would earn a total of 1,036 from holding Embraer SA ADR or generate 36.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BAE Systems PLC vs. Embraer SA ADR
Performance |
| Timeline |
| BAE Systems PLC |
| Embraer SA ADR |
BAE Systems and Embraer SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BAE Systems and Embraer SA
The main advantage of trading using opposite BAE Systems and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems 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.| BAE Systems vs. Element Solutions | BAE Systems vs. Orion Engineered Carbons | BAE Systems vs. Minerals Technologies | BAE Systems vs. Ingevity Corp |
| Embraer SA vs. HEICO | Embraer SA vs. Vertical Aerospace | Embraer SA vs. Rolls Royce Holdings plc | Embraer SA vs. Rocket Lab USA |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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