Correlation Between Aegean Airlines and Caterpillar

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

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

Diversification Opportunities for Aegean Airlines and Caterpillar

-0.82

Correlation Coefficient

Aegean Airlines  Caterpillar

Pay attention - limited upside

The 3 months correlation between Aegean and Caterpillar is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Aegean Airlines SA and Caterpillar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caterpillar and Aegean 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 Aegean Airlines SA are associated (or correlated) with Caterpillar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caterpillar has no effect on the direction of Aegean Airlines i.e., Aegean Airlines and Caterpillar go up and down completely randomly.

Pair Corralation between Aegean Airlines and Caterpillar

Assuming the 90 days horizon Aegean Airlines SA is expected to under-perform the Caterpillar. But the stock apears to be less risky and, when comparing its historical volatility, Aegean Airlines SA is 1.3 times less risky than Caterpillar. The stock trades about -0.15 of its potential returns per unit of risk. The Caterpillar is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  35,810  in Caterpillar on September 4, 2024 and sell it today you would earn a total of  2,690  from holding Caterpillar or generate 7.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	97.67%
Values	Daily Returns

Aegean Airlines SA  vs.  Caterpillar

Aegean Airlines SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aegean Airlines SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Caterpillar

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caterpillar are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Caterpillar exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aegean Airlines and Caterpillar

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

The idea behind Aegean Airlines SA and Caterpillar 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.