Correlation Between American Airlines and CLOUDFLARE INC

Can any of the company-specific risk be diversified away by investing in both American Airlines and CLOUDFLARE INC 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 CLOUDFLARE INC 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 CLOUDFLARE INC A, you can compare the effects of market volatilities on American Airlines and CLOUDFLARE INC 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 CLOUDFLARE INC. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and CLOUDFLARE INC.

Diversification Opportunities for American Airlines and CLOUDFLARE INC

0.94

Correlation Coefficient

American Airlines  CLOUDFLARE INC

Almost no diversification

The 3 months correlation between American and CLOUDFLARE is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and CLOUDFLARE INC A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLOUDFLARE INC A 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 CLOUDFLARE INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLOUDFLARE INC A has no effect on the direction of American Airlines i.e., American Airlines and CLOUDFLARE INC go up and down completely randomly.

Pair Corralation between American Airlines and CLOUDFLARE INC

Assuming the 90 days horizon American Airlines Group is expected to generate 1.17 times more return on investment than CLOUDFLARE INC. However, American Airlines is 1.17 times more volatile than CLOUDFLARE INC A. It trades about 0.2 of its potential returns per unit of risk. CLOUDFLARE INC A is currently generating about 0.2 per unit of risk. If you would invest  1,204  in American Airlines Group on October 24, 2024 and sell it today you would earn a total of  557.00  from holding American Airlines Group or generate 46.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.31%
Values	Daily Returns

American Airlines Group  vs.  CLOUDFLARE INC A

American Airlines

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

CLOUDFLARE INC A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CLOUDFLARE INC A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, CLOUDFLARE INC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Airlines and CLOUDFLARE INC

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

The idea behind American Airlines Group and CLOUDFLARE INC A 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.