Correlation Between American Airlines and Spirit Airlines
Can any of the company-specific risk be diversified away by investing in both American Airlines and Spirit Airlines 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 Spirit Airlines 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 Spirit Airlines, you can compare the effects of market volatilities on American Airlines and Spirit Airlines 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 Spirit Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Spirit Airlines.
Diversification Opportunities for American Airlines and Spirit Airlines
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Spirit is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Spirit Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Airlines 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 Spirit Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Airlines has no effect on the direction of American Airlines i.e., American Airlines and Spirit Airlines go up and down completely randomly.
Pair Corralation between American Airlines and Spirit Airlines
Considering the 90-day investment horizon American Airlines Group is expected to generate 0.14 times more return on investment than Spirit Airlines. However, American Airlines Group is 7.35 times less risky than Spirit Airlines. It trades about 0.22 of its potential returns per unit of risk. Spirit Airlines is currently generating about -0.12 per unit of risk. If you would invest 1,039 in American Airlines Group on August 23, 2024 and sell it today you would earn a total of 381.00 from holding American Airlines Group or generate 36.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
American Airlines Group vs. Spirit Airlines
Performance |
| Timeline |
| American Airlines |
| Spirit Airlines |
American Airlines and Spirit Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and Spirit Airlines
The main advantage of trading using opposite American Airlines and Spirit Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, Spirit Airlines 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 Spirit Airlines will offset losses from the drop in Spirit Airlines' long position.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
| Spirit Airlines vs. American Airlines Group | Spirit Airlines vs. Delta Air Lines | Spirit Airlines vs. Southwest Airlines | Spirit Airlines vs. United Airlines Holdings |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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