Correlation Between CSX and American Airlines
Can any of the company-specific risk be diversified away by investing in both CSX 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 CSX and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CSX Corporation and American Airlines Group, you can compare the effects of market volatilities on CSX 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 CSX with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSX and American Airlines.
Diversification Opportunities for CSX and American Airlines
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CSX and American is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding CSX Corp. and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and CSX 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 CSX Corporation 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 CSX i.e., CSX and American Airlines go up and down completely randomly.
Pair Corralation between CSX and American Airlines
Considering the 90-day investment horizon CSX is expected to generate 1.62 times less return on investment than American Airlines. But when comparing it to its historical volatility, CSX Corporation is 1.95 times less risky than American Airlines. It trades about 0.05 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 1,223 in American Airlines Group on August 25, 2024 and sell it today you would earn a total of 215.00 from holding American Airlines Group or generate 17.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CSX Corp. vs. American Airlines Group
Performance |
| Timeline |
| CSX Corporation |
| American Airlines |
CSX and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CSX and American Airlines
The main advantage of trading using opposite CSX and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSX 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.| CSX vs. Union Pacific | CSX vs. Canadian National Railway | CSX vs. Canadian Pacific Railway | CSX vs. Westinghouse Air Brake |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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