Correlation Between American Airlines and XPO Logistics
Can any of the company-specific risk be diversified away by investing in both American Airlines and XPO Logistics 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 XPO Logistics 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 XPO Logistics, you can compare the effects of market volatilities on American Airlines and XPO Logistics 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 XPO Logistics. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and XPO Logistics.
Diversification Opportunities for American Airlines and XPO Logistics
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and XPO is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and XPO Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XPO Logistics 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 XPO Logistics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XPO Logistics has no effect on the direction of American Airlines i.e., American Airlines and XPO Logistics go up and down completely randomly.
Pair Corralation between American Airlines and XPO Logistics
Considering the 90-day investment horizon American Airlines is expected to generate 3.04 times less return on investment than XPO Logistics. But when comparing it to its historical volatility, American Airlines Group is 1.48 times less risky than XPO Logistics. It trades about 0.21 of its potential returns per unit of risk. XPO Logistics is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest 10,947 in XPO Logistics on August 24, 2024 and sell it today you would earn a total of 4,022 from holding XPO Logistics or generate 36.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. XPO Logistics
Performance |
| Timeline |
| American Airlines |
| XPO Logistics |
American Airlines and XPO Logistics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and XPO Logistics
The main advantage of trading using opposite American Airlines and XPO Logistics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, XPO Logistics 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 XPO Logistics will offset losses from the drop in XPO Logistics' long position.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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