Correlation Between American Airlines and Home Depot
Can any of the company-specific risk be diversified away by investing in both American Airlines and Home Depot 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 Home Depot 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 The Home Depot, you can compare the effects of market volatilities on American Airlines and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Home Depot.
Diversification Opportunities for American Airlines and Home Depot
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Home is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of American Airlines i.e., American Airlines and Home Depot go up and down completely randomly.
Pair Corralation between American Airlines and Home Depot
Assuming the 90 days trading horizon American Airlines Group is expected to generate 1.93 times more return on investment than Home Depot. However, American Airlines is 1.93 times more volatile than The Home Depot. It trades about 0.22 of its potential returns per unit of risk. The Home Depot is currently generating about 0.38 per unit of risk. If you would invest 7,803 in American Airlines Group on September 1, 2024 and sell it today you would earn a total of 935.00 from holding American Airlines Group or generate 11.98% 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. The Home Depot
Performance |
| Timeline |
| American Airlines |
| Home Depot |
American Airlines and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and Home Depot
The main advantage of trading using opposite American Airlines and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| American Airlines vs. Southwest Airlines Co | American Airlines vs. United Airlines Holdings | American Airlines vs. Clave Indices De | American Airlines vs. Fica Empreendimentos Imobiliarios |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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