Correlation Between American Airlines and Allegiant Travel
Can any of the company-specific risk be diversified away by investing in both American Airlines and Allegiant Travel 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 Allegiant Travel 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 Allegiant Travel, you can compare the effects of market volatilities on American Airlines and Allegiant Travel 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 Allegiant Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Allegiant Travel.
Diversification Opportunities for American Airlines and Allegiant Travel
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Allegiant is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel 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 Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of American Airlines i.e., American Airlines and Allegiant Travel go up and down completely randomly.
Pair Corralation between American Airlines and Allegiant Travel
Considering the 90-day investment horizon American Airlines is expected to generate 3.79 times less return on investment than Allegiant Travel. But when comparing it to its historical volatility, American Airlines Group is 1.73 times less risky than Allegiant Travel. It trades about 0.13 of its potential returns per unit of risk. Allegiant Travel is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 6,380 in Allegiant Travel on August 27, 2024 and sell it today you would earn a total of 1,529 from holding Allegiant Travel or generate 23.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. Allegiant Travel
Performance |
| Timeline |
| American Airlines |
| Allegiant Travel |
American Airlines and Allegiant Travel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and Allegiant Travel
The main advantage of trading using opposite American Airlines and Allegiant Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, Allegiant Travel 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 Allegiant Travel will offset losses from the drop in Allegiant Travel's long position.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
| Allegiant Travel vs. Azul SA | Allegiant Travel vs. Alaska Air Group | Allegiant Travel vs. International Consolidated Airlines | Allegiant Travel vs. Sun Country Airlines |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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