Correlation Between International Business and American Airlines
Can any of the company-specific risk be diversified away by investing in both International Business 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 International Business and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Business Machines and American Airlines Group, you can compare the effects of market volatilities on International Business 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 International Business with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Business and American Airlines.
Diversification Opportunities for International Business and American Airlines
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between International and American is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and International Business 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 International Business Machines 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 International Business i.e., International Business and American Airlines go up and down completely randomly.
Pair Corralation between International Business and American Airlines
Considering the 90-day investment horizon International Business Machines is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, International Business Machines is 2.93 times less risky than American Airlines. The stock trades about -0.33 of its potential returns per unit of risk. The American Airlines Group is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 1,457 in American Airlines Group on January 20, 2024 and sell it today you would lose (55.00) from holding American Airlines Group or give up 3.77% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
International Business Machine vs. American Airlines Group
Performance |
| Timeline |
| International Business |
| American Airlines |
International Business and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Business and American Airlines
The main advantage of trading using opposite International Business and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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.| International Business vs. Information Services Group | International Business vs. Home Bancorp | International Business vs. CRA International | International Business vs. Aquagold International |
| 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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