Correlation Between Charter Communications and United Airlines
Can any of the company-specific risk be diversified away by investing in both Charter Communications and United 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 Charter Communications and United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Charter Communications and United Airlines Holdings, you can compare the effects of market volatilities on Charter Communications and United 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 Charter Communications with a short position of United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charter Communications and United Airlines.
Diversification Opportunities for Charter Communications and United Airlines
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Charter and United is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings and Charter Communications 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 Charter Communications are associated (or correlated) with United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Charter Communications i.e., Charter Communications and United Airlines go up and down completely randomly.
Pair Corralation between Charter Communications and United Airlines
Assuming the 90 days trading horizon Charter Communications is expected to generate 2.04 times less return on investment than United Airlines. But when comparing it to its historical volatility, Charter Communications is 1.21 times less risky than United Airlines. It trades about 0.11 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 11,088 in United Airlines Holdings on August 27, 2024 and sell it today you would earn a total of 16,587 from holding United Airlines Holdings or generate 149.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.95% |
| Values | Daily Returns |
Charter Communications vs. United Airlines Holdings
Performance |
| Timeline |
| Charter Communications |
| United Airlines Holdings |
Charter Communications and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Charter Communications and United Airlines
The main advantage of trading using opposite Charter Communications and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications position performs unexpectedly, United 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 United Airlines will offset losses from the drop in United Airlines' long position.The idea behind Charter Communications and United Airlines 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.
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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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