Correlation Between United Fire and United Airlines
Can any of the company-specific risk be diversified away by investing in both United Fire and United 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 United Fire and United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Fire Group and United Airlines Holdings, you can compare the effects of market volatilities on United Fire and United 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 United Fire with a short position of United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and United Airlines.
Diversification Opportunities for United Fire and United Airlines
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and United is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings and United Fire 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 United Fire Group are associated (or correlated) with United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of United Fire i.e., United Fire and United Airlines go up and down completely randomly.
Pair Corralation between United Fire and United Airlines
Given the investment horizon of 90 days United Fire is expected to generate 1.64 times less return on investment than United Airlines. But when comparing it to its historical volatility, United Fire Group is 1.07 times less risky than United Airlines. It trades about 0.08 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 4,039 in United Airlines Holdings on September 4, 2024 and sell it today you would earn a total of 5,705 from holding United Airlines Holdings or generate 141.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Fire Group vs. United Airlines Holdings
Performance |
| Timeline |
| United Fire Group |
| United Airlines Holdings |
United Fire and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Fire and United Airlines
The main advantage of trading using opposite United Fire and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire position performs unexpectedly, United 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 United Airlines will offset losses from the drop in United Airlines' long position.| United Fire vs. Donegal Group B | United Fire vs. Horace Mann Educators | United Fire vs. Donegal Group A | United Fire vs. Global Indemnity PLC |
| United Airlines vs. American Airlines Group | United Airlines vs. Southwest Airlines | United Airlines vs. JetBlue Airways Corp | United Airlines vs. Delta Air Lines |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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