Correlation Between Embraer SA and Howmet Aerospace
Can any of the company-specific risk be diversified away by investing in both Embraer SA and Howmet Aerospace 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 Howmet Aerospace 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 Howmet Aerospace, you can compare the effects of market volatilities on Embraer SA and Howmet Aerospace 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 Howmet Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embraer SA and Howmet Aerospace.
Diversification Opportunities for Embraer SA and Howmet Aerospace
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Embraer and Howmet is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace 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 Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Embraer SA i.e., Embraer SA and Howmet Aerospace go up and down completely randomly.
Pair Corralation between Embraer SA and Howmet Aerospace
Considering the 90-day investment horizon Embraer SA is expected to generate 1.29 times less return on investment than Howmet Aerospace. But when comparing it to its historical volatility, Embraer SA ADR is 1.09 times less risky than Howmet Aerospace. It trades about 0.19 of its potential returns per unit of risk. Howmet Aerospace is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 10,107 in Howmet Aerospace on August 31, 2024 and sell it today you would earn a total of 1,563 from holding Howmet Aerospace or generate 15.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Embraer SA ADR vs. Howmet Aerospace
Performance |
| Timeline |
| Embraer SA ADR |
| Howmet Aerospace |
Embraer SA and Howmet Aerospace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Embraer SA and Howmet Aerospace
The main advantage of trading using opposite Embraer SA and Howmet Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Embraer SA position performs unexpectedly, Howmet Aerospace 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 Howmet Aerospace will offset losses from the drop in Howmet Aerospace's long position.| Embraer SA vs. HEICO | Embraer SA vs. Vertical Aerospace | Embraer SA vs. Rolls Royce Holdings plc | Embraer SA vs. Rocket Lab USA |
| Howmet Aerospace vs. Curtiss Wright | Howmet Aerospace vs. Mercury Systems | Howmet Aerospace vs. AAR Corp | Howmet Aerospace vs. Ducommun Incorporated |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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