Correlation Between Basic Materials and American Airlines
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and American Airlines Group, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and American Airlines.
Diversification Opportunities for Basic Materials and American Airlines
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Basic and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and American Airlines go up and down completely randomly.
Pair Corralation between Basic Materials and American Airlines
Assuming the 90 days trading horizon Basic Materials is expected to generate 40.68 times less return on investment than American Airlines. But when comparing it to its historical volatility, Basic Materials is 2.29 times less risky than American Airlines. It trades about 0.01 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 7,872 in American Airlines Group on August 28, 2024 and sell it today you would earn a total of 859.00 from holding American Airlines Group or generate 10.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Basic Materials vs. American Airlines Group
Performance |
| Timeline |
Basic Materials and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
American Airlines Group
Pair trading matchups for American Airlines
Pair Trading with Basic Materials and American Airlines
The main advantage of trading using opposite Basic Materials and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Bio Techne | Basic Materials vs. Charter Communications | Basic Materials vs. Metalrgica Riosulense SA | Basic Materials vs. Marvell Technology |
| American Airlines vs. Metalurgica Gerdau SA | American Airlines vs. Multilaser Industrial SA | American Airlines vs. Zoom Video Communications | American Airlines vs. Verizon Communications |
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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