Correlation Between American Airlines and Spirit Airlines

Can any of the company-specific risk be diversified away by investing in both American Airlines and Spirit 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 American Airlines and Spirit Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Airlines Group and Spirit Airlines, you can compare the effects of market volatilities on American Airlines and Spirit 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 American Airlines with a short position of Spirit Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Spirit Airlines.

Diversification Opportunities for American Airlines and Spirit Airlines

-0.39

Correlation Coefficient

American Airlines  Spirit Airlines

Very good diversification

The 3 months correlation between American and Spirit is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Spirit Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Airlines and American Airlines 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 American Airlines Group are associated (or correlated) with Spirit Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Airlines has no effect on the direction of American Airlines i.e., American Airlines and Spirit Airlines go up and down completely randomly.

Pair Corralation between American Airlines and Spirit Airlines

Considering the 90-day investment horizon American Airlines Group is expected to generate 0.13 times more return on investment than Spirit Airlines. However, American Airlines Group is 7.63 times less risky than Spirit Airlines. It trades about 0.22 of its potential returns per unit of risk. Spirit Airlines is currently generating about -0.1 per unit of risk. If you would invest  1,060  in American Airlines Group on September 2, 2024 and sell it today you would earn a total of  392.00  from holding American Airlines Group or generate 36.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.06%
Values	Daily Returns

American Airlines Group  vs.  Spirit Airlines

American Airlines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Spirit Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirit Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with American Airlines and Spirit Airlines

The main advantage of trading using opposite American Airlines and Spirit Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, Spirit 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 Spirit Airlines will offset losses from the drop in Spirit Airlines' long position.

The idea behind American Airlines Group and Spirit Airlines pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.