Correlation Between Embraer SA and Allete

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

Diversification Opportunities for Embraer SA and Allete

-0.13

Correlation Coefficient

Embraer SA  Allete

Good diversification

The 3 months correlation between Embraer and Allete is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Embraer SA ADR and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc 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 Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of Embraer SA i.e., Embraer SA and Allete go up and down completely randomly.

Pair Corralation between Embraer SA and Allete

Considering the 90-day investment horizon Embraer SA ADR is expected to generate 7.09 times more return on investment than Allete. However, Embraer SA is 7.09 times more volatile than Allete Inc. It trades about 0.13 of its potential returns per unit of risk. Allete Inc is currently generating about 0.09 per unit of risk. If you would invest  4,641  in Embraer SA ADR on May 6, 2025 and sell it today you would earn a total of  1,087  from holding Embraer SA ADR or generate 23.42% return on investment over 90 days.

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

Embraer SA ADR  vs.  Allete Inc

Embraer SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embraer SA ADR are ranked lower than 10 (%) 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.

Allete Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Embraer SA and Allete

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

The idea behind Embraer SA ADR and Allete Inc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.