Correlation Between Ducommun Incorporated and Embraer SA

Can any of the company-specific risk be diversified away by investing in both Ducommun Incorporated 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 Ducommun Incorporated and Embraer SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ducommun Incorporated and Embraer SA ADR, you can compare the effects of market volatilities on Ducommun Incorporated 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 Ducommun Incorporated with a short position of Embraer SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ducommun Incorporated and Embraer SA.

Diversification Opportunities for Ducommun Incorporated and Embraer SA

0.59

Correlation Coefficient

Ducommun Incorporated  Embraer SA

Very weak diversification

The 3 months correlation between Ducommun and Embraer is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Ducommun Incorporated 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 Ducommun Incorporated 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 Ducommun Incorporated 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 Ducommun Incorporated i.e., Ducommun Incorporated and Embraer SA go up and down completely randomly.

Pair Corralation between Ducommun Incorporated and Embraer SA

Considering the 90-day investment horizon Ducommun Incorporated is expected to generate 2.1 times less return on investment than Embraer SA. But when comparing it to its historical volatility, Ducommun Incorporated is 1.39 times less risky than Embraer SA. It trades about 0.05 of its potential returns per unit of risk. Embraer SA ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,479  in Embraer SA ADR on September 4, 2024 and sell it today you would earn a total of  321.00  from holding Embraer SA ADR or generate 9.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Ducommun Incorporated  vs.  Embraer SA ADR

Ducommun Incorporated

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ducommun Incorporated are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Ducommun Incorporated is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Embraer SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Embraer SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ducommun Incorporated and Embraer SA

The main advantage of trading using opposite Ducommun Incorporated and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ducommun Incorporated 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.

The idea behind Ducommun Incorporated and Embraer SA ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.