Correlation Between Best Buy and American Airlines
Can any of the company-specific risk be diversified away by investing in both Best Buy and American Airlines 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 Best Buy and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and American Airlines Group, you can compare the effects of market volatilities on Best Buy and American Airlines 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 Best Buy with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and American Airlines.
Diversification Opportunities for Best Buy and American Airlines
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Best and American is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Best Buy 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 Best Buy Co are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Best Buy i.e., Best Buy and American Airlines go up and down completely randomly.
Pair Corralation between Best Buy and American Airlines
Assuming the 90 days trading horizon Best Buy Co is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 1.93 times less risky than American Airlines. The stock trades about -0.02 of its potential returns per unit of risk. The American Airlines Group is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 6,026 in American Airlines Group on September 2, 2024 and sell it today you would earn a total of 2,712 from holding American Airlines Group or generate 45.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.88% |
| Values | Daily Returns |
Best Buy Co vs. American Airlines Group
Performance |
| Timeline |
| Best Buy |
| American Airlines |
Best Buy and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Best Buy and American Airlines
The main advantage of trading using opposite Best Buy and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Best Buy vs. Take Two Interactive Software | Best Buy vs. Cognizant Technology Solutions | Best Buy vs. Livetech da Bahia | Best Buy vs. Brpr Corporate Offices |
| American Airlines vs. GP Investments | American Airlines vs. Verizon Communications | American Airlines vs. Brpr Corporate Offices | American Airlines vs. Warner Music Group |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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