Correlation Between Old Dominion and American Airlines
Can any of the company-specific risk be diversified away by investing in both Old Dominion 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 Old Dominion and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Old Dominion Freight and American Airlines Group, you can compare the effects of market volatilities on Old Dominion 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 Old Dominion with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Old Dominion and American Airlines.
Diversification Opportunities for Old Dominion and American Airlines
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Old and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Old Dominion Freight and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Old Dominion 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 Old Dominion Freight 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 Old Dominion i.e., Old Dominion and American Airlines go up and down completely randomly.
Pair Corralation between Old Dominion and American Airlines
Given the investment horizon of 90 days Old Dominion Freight is expected to generate 1.2 times more return on investment than American Airlines. However, Old Dominion is 1.2 times more volatile than American Airlines Group. It trades about 0.18 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.12 per unit of risk. If you would invest 20,088 in Old Dominion Freight on August 29, 2024 and sell it today you would earn a total of 2,293 from holding Old Dominion Freight or generate 11.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Old Dominion Freight vs. American Airlines Group
Performance |
| Timeline |
| Old Dominion Freight |
| American Airlines |
Old Dominion and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Old Dominion and American Airlines
The main advantage of trading using opposite Old Dominion and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old Dominion 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.| Old Dominion vs. ArcBest Corp | Old Dominion vs. Marten Transport | Old Dominion vs. Werner Enterprises | Old Dominion vs. Knight Transportation |
| American Airlines vs. JetBlue Airways Corp | American Airlines vs. SkyWest | American Airlines vs. International Consolidated Airlines | American Airlines vs. Spirit Airlines |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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