Correlation Between American Airlines and Mitsui Chemicals

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

Diversification Opportunities for American Airlines and Mitsui Chemicals

-0.76

Correlation Coefficient

American Airlines  Mitsui Chemicals

Pay attention - limited upside

The 3 months correlation between American and Mitsui is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals 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 Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of American Airlines i.e., American Airlines and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between American Airlines and Mitsui Chemicals

Assuming the 90 days horizon American Airlines Group is expected to under-perform the Mitsui Chemicals. In addition to that, American Airlines is 2.33 times more volatile than Mitsui Chemicals. It trades about -0.21 of its total potential returns per unit of risk. Mitsui Chemicals is currently generating about 0.1 per unit of volatility. If you would invest  2,040  in Mitsui Chemicals on December 21, 2024 and sell it today you would earn a total of  160.00  from holding Mitsui Chemicals or generate 7.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

American Airlines Group  vs.  Mitsui Chemicals

American Airlines

Risk-Adjusted Performance

Very Weak

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

Mitsui Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsui Chemicals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Mitsui Chemicals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Airlines and Mitsui Chemicals

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

The idea behind American Airlines Group and Mitsui Chemicals 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.