Correlation Between Lilium Equity and Embraer SA

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

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

Diversification Opportunities for Lilium Equity and Embraer SA

-0.73

Correlation Coefficient

Lilium Equity  Embraer SA

Pay attention - limited upside

The 3 months correlation between Lilium and Embraer is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lilium Equity Warrants 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 Lilium Equity 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 Lilium Equity Warrants 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 Lilium Equity i.e., Lilium Equity and Embraer SA go up and down completely randomly.

Pair Corralation between Lilium Equity and Embraer SA

Assuming the 90 days horizon Lilium Equity Warrants is expected to under-perform the Embraer SA. In addition to that, Lilium Equity is 7.37 times more volatile than Embraer SA ADR. It trades about -0.15 of its total potential returns per unit of risk. Embraer SA ADR is currently generating about 0.11 per unit of volatility. If you would invest  3,281  in Embraer SA ADR on September 3, 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	Weak
Accuracy	75.0%
Values	Daily Returns

Lilium Equity Warrants  vs.  Embraer SA ADR

Lilium Equity Warrants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lilium Equity Warrants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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.

Pair Trading with Lilium Equity and Embraer SA

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

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.