Correlation Between Iochpe Maxion and Embraer SA

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

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

Diversification Opportunities for Iochpe Maxion and Embraer SA

0.62

Correlation Coefficient

Iochpe Maxion  Embraer SA

Poor diversification

The 3 months correlation between Iochpe and Embraer is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Iochpe Maxion SA and Embraer SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embraer SA and Iochpe Maxion 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 Iochpe Maxion SA 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 has no effect on the direction of Iochpe Maxion i.e., Iochpe Maxion and Embraer SA go up and down completely randomly.

Pair Corralation between Iochpe Maxion and Embraer SA

Assuming the 90 days trading horizon Iochpe Maxion is expected to generate 5.34 times less return on investment than Embraer SA. But when comparing it to its historical volatility, Iochpe Maxion SA is 1.07 times less risky than Embraer SA. It trades about 0.03 of its potential returns per unit of risk. Embraer SA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,561  in Embraer SA on August 31, 2024 and sell it today you would earn a total of  1,105  from holding Embraer SA or generate 24.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Iochpe Maxion SA  vs.  Embraer SA

Iochpe Maxion SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iochpe Maxion SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Iochpe Maxion is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Embraer SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Embraer SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iochpe Maxion and Embraer SA

The main advantage of trading using opposite Iochpe Maxion and Embraer SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iochpe Maxion 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 Iochpe Maxion SA and Embraer SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.