Correlation Between Dow Jones and American Airlines
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and American Airlines Group, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Airlines.
Diversification Opportunities for Dow Jones and American Airlines
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and American Airlines go up and down completely randomly.
Pair Corralation between Dow Jones and American Airlines
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.29 times more return on investment than American Airlines. However, Dow Jones Industrial is 3.43 times less risky than American Airlines. It trades about 0.08 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.02 per unit of risk. If you would invest 3,378,148 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 1,107,883 from holding Dow Jones Industrial or generate 32.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.22% |
| Values | Daily Returns |
Dow Jones Industrial vs. American Airlines Group
Performance |
| Timeline |
Dow Jones and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Airlines Group
Pair trading matchups for American Airlines
Pair Trading with Dow Jones and American Airlines
The main advantage of trading using opposite Dow Jones and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| American Airlines vs. RYANAIR HLDGS ADR | American Airlines vs. Southwest Airlines Co | American Airlines vs. Ryanair Holdings plc | American Airlines vs. Superior Plus Corp |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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