Correlation Between Rheinmetall and Embraer SA
Can any of the company-specific risk be diversified away by investing in both Rheinmetall 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 Rheinmetall and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rheinmetall AG ADR and Embraer SA ADR, you can compare the effects of market volatilities on Rheinmetall 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 Rheinmetall with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Embraer SA.
Diversification Opportunities for Rheinmetall and Embraer SA
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rheinmetall and Embraer is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG ADR 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 Rheinmetall 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 Rheinmetall AG ADR 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 Rheinmetall i.e., Rheinmetall and Embraer SA go up and down completely randomly.
Pair Corralation between Rheinmetall and Embraer SA
Assuming the 90 days horizon Rheinmetall is expected to generate 1.15 times less return on investment than Embraer SA. But when comparing it to its historical volatility, Rheinmetall AG ADR is 1.15 times less risky than Embraer SA. It trades about 0.12 of its potential returns per unit of risk. Embraer SA ADR is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,014 in Embraer SA ADR on September 2, 2024 and sell it today you would earn a total of 2,809 from holding Embraer SA ADR or generate 277.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rheinmetall AG ADR vs. Embraer SA ADR
Performance |
| Timeline |
| Rheinmetall AG ADR |
| Embraer SA ADR |
Rheinmetall and Embraer SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rheinmetall and Embraer SA
The main advantage of trading using opposite Rheinmetall and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rheinmetall 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.| Rheinmetall vs. Firan Technology Group | Rheinmetall vs. 808 Renewable Energy | Rheinmetall vs. Park Electrochemical | Rheinmetall vs. Innovative Solutions and |
| 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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