Correlation Between American Airlines and NIPPON STEEL
Can any of the company-specific risk be diversified away by investing in both American Airlines and NIPPON STEEL 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 NIPPON STEEL 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 NIPPON STEEL SPADR, you can compare the effects of market volatilities on American Airlines and NIPPON STEEL 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 NIPPON STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and NIPPON STEEL.
Diversification Opportunities for American Airlines and NIPPON STEEL
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between American and NIPPON is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and NIPPON STEEL SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON STEEL SPADR 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 NIPPON STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIPPON STEEL SPADR has no effect on the direction of American Airlines i.e., American Airlines and NIPPON STEEL go up and down completely randomly.
Pair Corralation between American Airlines and NIPPON STEEL
Assuming the 90 days horizon American Airlines Group is expected to generate 1.95 times more return on investment than NIPPON STEEL. However, American Airlines is 1.95 times more volatile than NIPPON STEEL SPADR. It trades about 0.14 of its potential returns per unit of risk. NIPPON STEEL SPADR is currently generating about 0.18 per unit of risk. If you would invest 1,257 in American Airlines Group on August 27, 2024 and sell it today you would earn a total of 89.00 from holding American Airlines Group or generate 7.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. NIPPON STEEL SPADR
Performance |
| Timeline |
| American Airlines |
| NIPPON STEEL SPADR |
American Airlines and NIPPON STEEL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and NIPPON STEEL
The main advantage of trading using opposite American Airlines and NIPPON STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, NIPPON STEEL 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 NIPPON STEEL will offset losses from the drop in NIPPON STEEL's long position.The idea behind American Airlines Group and NIPPON STEEL SPADR 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.| NIPPON STEEL vs. ArcelorMittal SA | NIPPON STEEL vs. ArcelorMittal | NIPPON STEEL vs. Nippon Steel | NIPPON STEEL vs. Reliance Steel Aluminum |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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