Correlation Between Embraer SA and Thales SA

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

Diversification Opportunities for Embraer SA and Thales SA

-0.29

Correlation Coefficient

Embraer SA  Thales SA

Very good diversification

The 3 months correlation between Embraer and Thales is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Thales SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thales SA ADR 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 Thales SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thales SA ADR has no effect on the direction of Embraer SA i.e., Embraer SA and Thales SA go up and down completely randomly.

Pair Corralation between Embraer SA and Thales SA

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 1.51 times more return on investment than Thales SA. However, Embraer SA is 1.51 times more volatile than Thales SA ADR. It trades about 0.03 of its potential returns per unit of risk. Thales SA ADR is currently generating about -0.08 per unit of risk. If you would invest  3,582  in Embraer SA ADR on September 5, 2024 and sell it today you would earn a total of  123.00  from holding Embraer SA ADR or generate 3.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Embraer SA ADR  vs.  Thales SA ADR

Embraer SA ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Thales SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Embraer SA and Thales SA

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

The idea behind Embraer SA ADR and Thales 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.