Correlation Between Embraer SA and SIFCO Industries

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

Diversification Opportunities for Embraer SA and SIFCO Industries

-0.38

Correlation Coefficient

Embraer SA  SIFCO Industries

Very good diversification

The 3 months correlation between Embraer and SIFCO is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and SIFCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIFCO Industries 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 SIFCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIFCO Industries has no effect on the direction of Embraer SA i.e., Embraer SA and SIFCO Industries go up and down completely randomly.

Pair Corralation between Embraer SA and SIFCO Industries

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 0.74 times more return on investment than SIFCO Industries. However, Embraer SA ADR is 1.35 times less risky than SIFCO Industries. It trades about 0.11 of its potential returns per unit of risk. SIFCO Industries is currently generating about -0.15 per unit of risk. If you would invest  3,281  in Embraer SA ADR on September 2, 2024 and sell it today you would earn a total of  542.00  from holding Embraer SA ADR or generate 16.52% return on investment over 90 days.

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

Embraer SA ADR  vs.  SIFCO Industries

Embraer SA ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Embraer SA revealed solid returns over the last few months and may actually be approaching a breakup point.

SIFCO Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SIFCO Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Embraer SA and SIFCO Industries

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

The idea behind Embraer SA ADR and SIFCO Industries 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.