Correlation Between Rolls-Royce Holdings and Embraer SA
Can any of the company-specific risk be diversified away by investing in both Rolls-Royce Holdings 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 Rolls-Royce Holdings and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rolls Royce Holdings plc and Embraer SA ADR, you can compare the effects of market volatilities on Rolls-Royce Holdings 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 Rolls-Royce Holdings with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls-Royce Holdings and Embraer SA.
Diversification Opportunities for Rolls-Royce Holdings and Embraer SA
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Rolls-Royce and Embraer is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings 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 Rolls-Royce Holdings 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 Rolls Royce Holdings 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 Rolls-Royce Holdings i.e., Rolls-Royce Holdings and Embraer SA go up and down completely randomly.
Pair Corralation between Rolls-Royce Holdings and Embraer SA
Assuming the 90 days horizon Rolls-Royce Holdings is expected to generate 7.01 times less return on investment than Embraer SA. In addition to that, Rolls-Royce Holdings is 1.59 times more volatile than Embraer SA ADR. It trades about 0.02 of its total potential returns per unit of risk. Embraer SA ADR is currently generating about 0.24 per unit of volatility. If you would invest 3,352 in Embraer SA ADR on September 1, 2024 and sell it today you would earn a total of 471.00 from holding Embraer SA ADR or generate 14.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rolls Royce Holdings plc vs. Embraer SA ADR
Performance |
| Timeline |
| Rolls Royce Holdings |
| Embraer SA ADR |
Rolls-Royce Holdings and Embraer SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rolls-Royce Holdings and Embraer SA
The main advantage of trading using opposite Rolls-Royce Holdings and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls-Royce Holdings 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.| Rolls-Royce Holdings vs. Rolls Royce Holdings PLC | Rolls-Royce Holdings vs. VirTra Inc | Rolls-Royce Holdings vs. BWX Technologies | Rolls-Royce Holdings vs. Embraer SA ADR |
| 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments |