Correlation Between Rolls Royce and Embraer SA
Can any of the company-specific risk be diversified away by investing in both Rolls Royce 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 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 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 with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and Embraer SA.
Diversification Opportunities for Rolls Royce and Embraer SA
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Rolls and Embraer is -0.38. 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 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 i.e., Rolls Royce and Embraer SA go up and down completely randomly.
Pair Corralation between Rolls Royce and Embraer SA
Assuming the 90 days horizon Rolls Royce Holdings plc is expected to under-perform the Embraer SA. In addition to that, Rolls Royce is 1.67 times more volatile than Embraer SA ADR. It trades about -0.04 of its total potential returns per unit of risk. Embraer SA ADR is currently generating about 0.2 per unit of volatility. If you would invest 3,479 in Embraer SA ADR on August 24, 2024 and sell it today you would earn a total of 403.00 from holding Embraer SA ADR or generate 11.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rolls Royce Holdings plc vs. Embraer SA ADR
Performance |
| Timeline |
| Rolls Royce Holdings |
| Embraer SA ADR |
Rolls Royce and Embraer SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rolls Royce and Embraer SA
The main advantage of trading using opposite Rolls Royce and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce 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 vs. Safran SA | Rolls Royce vs. Moog Inc | Rolls Royce vs. BAE Systems PLC | Rolls Royce vs. Airbus Group SE |
| 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
Other Complementary Tools
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes |