Correlation Between Embraer SA and Singapore Technologies

Can any of the company-specific risk be diversified away by investing in both Embraer SA and Singapore Technologies 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 Singapore Technologies 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 Singapore Technologies Engineering, you can compare the effects of market volatilities on Embraer SA and Singapore Technologies 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 Singapore Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embraer SA and Singapore Technologies.

Diversification Opportunities for Embraer SA and Singapore Technologies

0.4

Correlation Coefficient

Embraer SA  Singapore Technologies

Very weak diversification

The 3 months correlation between Embraer and Singapore is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Singapore Technologies Enginee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Technologies 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 Singapore Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Technologies has no effect on the direction of Embraer SA i.e., Embraer SA and Singapore Technologies go up and down completely randomly.

Pair Corralation between Embraer SA and Singapore Technologies

Considering the 90-day investment horizon Embraer SA is expected to generate 3.69 times less return on investment than Singapore Technologies. But when comparing it to its historical volatility, Embraer SA ADR is 1.25 times less risky than Singapore Technologies. It trades about 0.01 of its potential returns per unit of risk. Singapore Technologies Engineering is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  295.00  in Singapore Technologies Engineering on September 13, 2024 and sell it today you would earn a total of  5.00  from holding Singapore Technologies Engineering or generate 1.69% return on investment over 90 days.

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

Embraer SA ADR  vs.  Singapore Technologies Enginee

Embraer SA ADR

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Embraer SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Embraer SA is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Singapore Technologies

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Technologies Engineering are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking signals, Singapore Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Embraer SA and Singapore Technologies

The main advantage of trading using opposite Embraer SA and Singapore Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Embraer SA position performs unexpectedly, Singapore Technologies 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 Singapore Technologies will offset losses from the drop in Singapore Technologies' long position.

The idea behind Embraer SA ADR and Singapore Technologies Engineering 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.