Correlation Between SkyWest and Air Transport

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

By analyzing existing cross correlation between SkyWest and Air Transport Services, you can compare the effects of market volatilities on SkyWest and Air Transport 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 Air Transport. Check out your portfolio center. Please also check ongoing floating volatility patterns of SkyWest and Air Transport.

Diversification Opportunities for SkyWest and Air Transport

0.12

Correlation Coefficient

SkyWest  Air Transport

Average diversification

The 3 months correlation between SkyWest and Air is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services 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 Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of SkyWest i.e., SkyWest and Air Transport go up and down completely randomly.

Pair Corralation between SkyWest and Air Transport

Given the investment horizon of 90 days SkyWest is expected to generate 0.58 times more return on investment than Air Transport. However, SkyWest is 1.72 times less risky than Air Transport. It trades about 0.4 of its potential returns per unit of risk. Air Transport Services is currently generating about 0.02 per unit of risk. If you would invest  7,593  in SkyWest on July 10, 2024 and sell it today you would earn a total of  965.00  from holding SkyWest or generate 12.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

SkyWest  vs.  Air Transport Services

SkyWest

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, SkyWest is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Air Transport Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Air Transport may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with SkyWest and Air Transport

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

The idea behind SkyWest and Air Transport Services 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.