Correlation Between Alaska Air and Talen Energy
Can any of the company-specific risk be diversified away by investing in both Alaska Air and Talen Energy 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 Talen Energy 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 Talen Energy, you can compare the effects of market volatilities on Alaska Air and Talen Energy 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 Talen Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alaska Air and Talen Energy.
Diversification Opportunities for Alaska Air and Talen Energy
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Alaska and Talen is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Talen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talen Energy 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 Talen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talen Energy has no effect on the direction of Alaska Air i.e., Alaska Air and Talen Energy go up and down completely randomly.
Pair Corralation between Alaska Air and Talen Energy
Considering the 90-day investment horizon Alaska Air is expected to generate 6.75 times less return on investment than Talen Energy. But when comparing it to its historical volatility, Alaska Air Group is 1.08 times less risky than Talen Energy. It trades about 0.03 of its potential returns per unit of risk. Talen Energy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 5,188 in Talen Energy on September 12, 2024 and sell it today you would earn a total of 15,178 from holding Talen Energy or generate 292.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alaska Air Group vs. Talen Energy
Performance |
| Timeline |
| Alaska Air Group |
| Talen Energy |
Alaska Air and Talen Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alaska Air and Talen Energy
The main advantage of trading using opposite Alaska Air and Talen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alaska Air position performs unexpectedly, Talen Energy 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 Talen Energy will offset losses from the drop in Talen Energy's long position.| Alaska Air vs. Delta Air Lines | Alaska Air vs. United Airlines Holdings | Alaska Air vs. American Airlines Group | Alaska Air vs. JetBlue Airways Corp |
| Talen Energy vs. Grupo Aeroportuario del | Talen Energy vs. Alaska Air Group | Talen Energy vs. AerSale Corp | Talen Energy vs. SunLink Health Systems |
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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