Correlation Between Alaska Air and FC Investment

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

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

Diversification Opportunities for Alaska Air and FC Investment

0.78

Correlation Coefficient

Alaska Air  FC Investment

Poor diversification

The 3 months correlation between Alaska and FCIT is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and FC Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FC Investment Trust and Alaska Air 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 Alaska Air Group are associated (or correlated) with FC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FC Investment Trust has no effect on the direction of Alaska Air i.e., Alaska Air and FC Investment go up and down completely randomly.

Pair Corralation between Alaska Air and FC Investment

Assuming the 90 days trading horizon Alaska Air is expected to generate 1.64 times less return on investment than FC Investment. But when comparing it to its historical volatility, Alaska Air Group is 2.79 times less risky than FC Investment. It trades about 0.25 of its potential returns per unit of risk. FC Investment Trust is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  73,990  in FC Investment Trust on November 20, 2024 and sell it today you would earn a total of  45,610  from holding FC Investment Trust or generate 61.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Alaska Air Group  vs.  FC Investment Trust

Alaska Air Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

FC Investment Trust

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FC Investment Trust are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, FC Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alaska Air and FC Investment

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

The idea behind Alaska Air Group and FC Investment Trust 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.