Correlation Between Advanced Medical and Alaska Air

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

Diversification Opportunities for Advanced Medical and Alaska Air

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Advanced and Alaska is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Medical Solutions and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and Advanced Medical 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 Advanced Medical Solutions are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Advanced Medical i.e., Advanced Medical and Alaska Air go up and down completely randomly.

Pair Corralation between Advanced Medical and Alaska Air

Assuming the 90 days trading horizon Advanced Medical is expected to generate 9.54 times less return on investment than Alaska Air. In addition to that, Advanced Medical is 1.11 times more volatile than Alaska Air Group. It trades about 0.01 of its total potential returns per unit of risk. Alaska Air Group is currently generating about 0.06 per unit of volatility. If you would invest  4,331  in Alaska Air Group on November 27, 2024 and sell it today you would earn a total of  2,910  from holding Alaska Air Group or generate 67.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy98.75%
ValuesDaily Returns

Advanced Medical Solutions  vs.  Alaska Air Group

 Performance 
       Timeline  
Advanced Medical Sol 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Over the last 90 days Advanced Medical Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Advanced Medical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Alaska Air Group 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

Advanced Medical and Alaska Air Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Advanced Medical and Alaska Air

The main advantage of trading using opposite Advanced Medical and Alaska Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Medical position performs unexpectedly, Alaska Air 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 Alaska Air will offset losses from the drop in Alaska Air's long position.
The idea behind Advanced Medical Solutions and Alaska Air Group 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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