Correlation Between American Airlines and Canadian Tire

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

Diversification Opportunities for American Airlines and Canadian Tire

0.59

Correlation Coefficient

American Airlines  Canadian Tire

Very weak diversification

The 3 months correlation between American and Canadian is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Canadian Tire Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Tire Corp 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 Canadian Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Tire Corp has no effect on the direction of American Airlines i.e., American Airlines and Canadian Tire go up and down completely randomly.

Pair Corralation between American Airlines and Canadian Tire

Assuming the 90 days horizon American Airlines Group is expected to generate 1.88 times more return on investment than Canadian Tire. However, American Airlines is 1.88 times more volatile than Canadian Tire Corp. It trades about 0.01 of its potential returns per unit of risk. Canadian Tire Corp is currently generating about 0.02 per unit of risk. If you would invest  1,557  in American Airlines Group on October 26, 2024 and sell it today you would earn a total of  37.00  from holding American Airlines Group or generate 2.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

American Airlines Group  vs.  Canadian Tire Corp

American Airlines

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 10 (%) 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.

Canadian Tire Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Tire Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Canadian Tire is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with American Airlines and Canadian Tire

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

The idea behind American Airlines Group and Canadian Tire Corp 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.