Correlation Between Alaska Air and Hawaiian Holdings

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Can any of the company-specific risk be diversified away by investing in both Alaska Air and Hawaiian Holdings 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 Alaska Air and Hawaiian Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alaska Air Group and Hawaiian Holdings, you can compare the effects of market volatilities on Alaska Air and Hawaiian Holdings 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 Alaska Air with a short position of Hawaiian Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alaska Air and Hawaiian Holdings.

Diversification Opportunities for Alaska Air and Hawaiian Holdings

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Alaska and Hawaiian is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Hawaiian Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Holdings and Alaska Air 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 Alaska Air Group are associated (or correlated) with Hawaiian Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Holdings has no effect on the direction of Alaska Air i.e., Alaska Air and Hawaiian Holdings go up and down completely randomly.

Pair Corralation between Alaska Air and Hawaiian Holdings

Considering the 90-day investment horizon Alaska Air is expected to generate 7.27 times less return on investment than Hawaiian Holdings. But when comparing it to its historical volatility, Alaska Air Group is 6.05 times less risky than Hawaiian Holdings. It trades about 0.07 of its potential returns per unit of risk. Hawaiian Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  449.00  in Hawaiian Holdings on August 26, 2024 and sell it today you would earn a total of  1,351  from holding Hawaiian Holdings or generate 300.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy80.72%
ValuesDaily Returns

Alaska Air Group  vs.  Hawaiian Holdings

 Performance 
       Timeline  
Alaska Air Group 

Risk-Adjusted Performance

24 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Alaska Air disclosed solid returns over the last few months and may actually be approaching a breakup point.
Hawaiian Holdings 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Good
Over the last 90 days Hawaiian Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat abnormal basic indicators, Hawaiian Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Alaska Air and Hawaiian Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alaska Air and Hawaiian Holdings

The main advantage of trading using opposite Alaska Air and Hawaiian Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air position performs unexpectedly, Hawaiian Holdings 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 Hawaiian Holdings will offset losses from the drop in Hawaiian Holdings' long position.
The idea behind Alaska Air Group and Hawaiian Holdings 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.
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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