Correlation Between American Airlines and Auto Trader
Can any of the company-specific risk be diversified away by investing in both American Airlines and Auto Trader 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 American Airlines and Auto Trader into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and Auto Trader Group, you can compare the effects of market volatilities on American Airlines and Auto Trader 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 American Airlines with a short position of Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Auto Trader.
Diversification Opportunities for American Airlines and Auto Trader
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Auto is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and American Airlines 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 American Airlines Group are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of American Airlines i.e., American Airlines and Auto Trader go up and down completely randomly.
Pair Corralation between American Airlines and Auto Trader
Assuming the 90 days horizon American Airlines Group is expected to generate 2.4 times more return on investment than Auto Trader. However, American Airlines is 2.4 times more volatile than Auto Trader Group. It trades about 0.23 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.01 per unit of risk. If you would invest 994.00 in American Airlines Group on September 12, 2024 and sell it today you would earn a total of 640.00 from holding American Airlines Group or generate 64.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. Auto Trader Group
Performance |
| Timeline |
| American Airlines |
| Auto Trader Group |
American Airlines and Auto Trader Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and Auto Trader
The main advantage of trading using opposite American Airlines and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, Auto Trader 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 Auto Trader will offset losses from the drop in Auto Trader's long position.| American Airlines vs. Renesas Electronics | American Airlines vs. UMC Electronics Co | American Airlines vs. CARSALESCOM | American Airlines vs. STMICROELECTRONICS |
| Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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