Correlation Between SkyWest and American Airlines
Can any of the company-specific risk be diversified away by investing in both SkyWest 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 SkyWest and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SkyWest and American Airlines Group, you can compare the effects of market volatilities on SkyWest 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 SkyWest with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of SkyWest and American Airlines.
Diversification Opportunities for SkyWest and American Airlines
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SkyWest and American is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and SkyWest 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 SkyWest 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 SkyWest i.e., SkyWest and American Airlines go up and down completely randomly.
Pair Corralation between SkyWest and American Airlines
Given the investment horizon of 90 days SkyWest is expected to generate 1.08 times more return on investment than American Airlines. However, SkyWest is 1.08 times more volatile than American Airlines Group. It trades about 0.34 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.23 per unit of risk. If you would invest 9,281 in SkyWest on August 25, 2024 and sell it today you would earn a total of 1,909 from holding SkyWest or generate 20.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SkyWest vs. American Airlines Group
Performance |
| Timeline |
| SkyWest |
| American Airlines |
SkyWest and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SkyWest and American Airlines
The main advantage of trading using opposite SkyWest and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SkyWest 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.| SkyWest vs. Copa Holdings SA | SkyWest vs. Sun Country Airlines | SkyWest vs. Air Transport Services | SkyWest vs. Frontier Group Holdings |
| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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