Correlation Between Trane Technologies and American Airlines
Can any of the company-specific risk be diversified away by investing in both Trane Technologies 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 Trane Technologies and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Trane Technologies plc and American Airlines Group, you can compare the effects of market volatilities on Trane Technologies 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 Trane Technologies with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trane Technologies and American Airlines.
Diversification Opportunities for Trane Technologies and American Airlines
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Trane and American is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Trane Technologies 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 Trane Technologies plc 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 Trane Technologies i.e., Trane Technologies and American Airlines go up and down completely randomly.
Pair Corralation between Trane Technologies and American Airlines
Assuming the 90 days trading horizon Trane Technologies plc is expected to generate 0.78 times more return on investment than American Airlines. However, Trane Technologies plc is 1.28 times less risky than American Airlines. It trades about 0.11 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 43,700 in Trane Technologies plc on October 26, 2024 and sell it today you would earn a total of 75,300 from holding Trane Technologies plc or generate 172.31% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.79% |
Values | Daily Returns |
Trane Technologies plc vs. American Airlines Group
Performance |
Timeline |
Trane Technologies plc |
American Airlines |
Trane Technologies and American Airlines Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Trane Technologies and American Airlines
The main advantage of trading using opposite Trane Technologies and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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.Trane Technologies vs. Clover Health Investments, | Trane Technologies vs. Zoom Video Communications | Trane Technologies vs. Ross Stores | Trane Technologies vs. G2D Investments |
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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 Transaction History module to view history of all your transactions and understand their impact on performance.
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