Correlation Between Embraer SA and Rheinmetall
Can any of the company-specific risk be diversified away by investing in both Embraer SA and Rheinmetall 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 Rheinmetall 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 Rheinmetall AG ADR, you can compare the effects of market volatilities on Embraer SA and Rheinmetall 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 Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embraer SA and Rheinmetall.
Diversification Opportunities for Embraer SA and Rheinmetall
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Embraer and Rheinmetall is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Rheinmetall AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG ADR 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG ADR has no effect on the direction of Embraer SA i.e., Embraer SA and Rheinmetall go up and down completely randomly.
Pair Corralation between Embraer SA and Rheinmetall
Considering the 90-day investment horizon Embraer SA is expected to generate 1.3 times less return on investment than Rheinmetall. In addition to that, Embraer SA is 1.14 times more volatile than Rheinmetall AG ADR. It trades about 0.1 of its total potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.15 per unit of volatility. If you would invest 11,475 in Rheinmetall AG ADR on November 2, 2024 and sell it today you would earn a total of 4,070 from holding Rheinmetall AG ADR or generate 35.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Embraer SA ADR vs. Rheinmetall AG ADR
Performance |
| Timeline |
| Embraer SA ADR |
| Rheinmetall AG ADR |
Embraer SA and Rheinmetall Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Embraer SA and Rheinmetall
The main advantage of trading using opposite Embraer SA and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Embraer SA position performs unexpectedly, Rheinmetall 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 Rheinmetall will offset losses from the drop in Rheinmetall'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 |
| Rheinmetall vs. Hensoldt AG | Rheinmetall vs. Heico | Rheinmetall vs. AeroVironment | Rheinmetall vs. Transdigm Group 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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