Correlation Between SPDR SP and American Airlines
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Insurance and American Airlines Group, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and American Airlines.
Diversification Opportunities for SPDR SP and American Airlines
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between SPDR and American is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Insurance and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and SPDR SP 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 SPDR SP Insurance 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 SPDR SP i.e., SPDR SP and American Airlines go up and down completely randomly.
Pair Corralation between SPDR SP and American Airlines
Considering the 90-day investment horizon SPDR SP Insurance is expected to generate 0.41 times more return on investment than American Airlines. However, SPDR SP Insurance is 2.42 times less risky than American Airlines. It trades about 0.05 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.01 per unit of risk. If you would invest 3,758 in SPDR SP Insurance on January 19, 2024 and sell it today you would earn a total of 1,014 from holding SPDR SP Insurance or generate 26.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Insurance vs. American Airlines Group
Performance |
| Timeline |
| SPDR SP Insurance |
| American Airlines |
SPDR SP and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and American Airlines
The main advantage of trading using opposite SPDR SP and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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.| SPDR SP vs. Energy Select Sector | SPDR SP vs. Technology Select Sector | SPDR SP vs. Health Care Select | SPDR SP vs. Industrial Select Sector |
| 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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