Correlation Between American Airlines and Dow Jones
Can any of the company-specific risk be diversified away by investing in both American Airlines and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on American Airlines and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Dow Jones.
Diversification Opportunities for American Airlines and Dow Jones
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Dow is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of American Airlines i.e., American Airlines and Dow Jones go up and down completely randomly.
Pair Corralation between American Airlines and Dow Jones
Assuming the 90 days horizon American Airlines Group is expected to generate 3.03 times more return on investment than Dow Jones. However, American Airlines is 3.03 times more volatile than Dow Jones Industrial. It trades about 0.19 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.26 per unit of risk. If you would invest 1,257 in American Airlines Group on August 29, 2024 and sell it today you would earn a total of 154.00 from holding American Airlines Group or generate 12.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. Dow Jones Industrial
Performance |
| Timeline |
American Airlines and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
American Airlines Group
Pair trading matchups for American Airlines
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with American Airlines and Dow Jones
The main advantage of trading using opposite American Airlines and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| American Airlines vs. Southwest Airlines Co | American Airlines vs. Ryanair Holdings plc | American Airlines vs. Superior Plus Corp | American Airlines vs. NMI Holdings |
| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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