Correlation Between Embraer SA and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Embraer SA and BAE Systems 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 Embraer SA and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Embraer SA ADR and BAE Systems PLC, you can compare the effects of market volatilities on Embraer SA and BAE Systems 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 Embraer SA with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embraer SA and BAE Systems.
Diversification Opportunities for Embraer SA and BAE Systems
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Embraer and BAE is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC and Embraer SA 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 Embraer SA ADR are associated (or correlated) with BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of Embraer SA i.e., Embraer SA and BAE Systems go up and down completely randomly.
Pair Corralation between Embraer SA and BAE Systems
Considering the 90-day investment horizon Embraer SA ADR is expected to generate 0.95 times more return on investment than BAE Systems. However, Embraer SA ADR is 1.06 times less risky than BAE Systems. It trades about 0.21 of its potential returns per unit of risk. BAE Systems PLC is currently generating about -0.07 per unit of risk. If you would invest 3,492 in Embraer SA ADR on August 25, 2024 and sell it today you would earn a total of 419.50 from holding Embraer SA ADR or generate 12.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Embraer SA ADR vs. BAE Systems PLC
Performance |
| Timeline |
| Embraer SA ADR |
| BAE Systems PLC |
Embraer SA and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Embraer SA and BAE Systems
The main advantage of trading using opposite Embraer SA and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Embraer SA position performs unexpectedly, BAE Systems 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 BAE Systems will offset losses from the drop in BAE Systems' long position.| Embraer SA vs. HEICO | Embraer SA vs. Vertical Aerospace | Embraer SA vs. Rolls Royce Holdings plc | Embraer SA vs. Rocket Lab USA |
| BAE Systems vs. Huntington Ingalls Industries | BAE Systems vs. Rheinmetall AG ADR | BAE Systems vs. Airbus Group NV | BAE Systems vs. General Dynamics |
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 CEOs Directory module to screen CEOs from public companies around the world.
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