Correlation Between Alaska Air and American Express

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

Diversification Opportunities for Alaska Air and American Express

0.53

Correlation Coefficient

Alaska Air  American Express

Very weak diversification

The 3 months correlation between Alaska and American is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group, and American Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of Alaska Air i.e., Alaska Air and American Express go up and down completely randomly.

Pair Corralation between Alaska Air and American Express

Assuming the 90 days trading horizon Alaska Air Group, is expected to generate 4.26 times more return on investment than American Express. However, Alaska Air is 4.26 times more volatile than American Express. It trades about 0.19 of its potential returns per unit of risk. American Express is currently generating about 0.08 per unit of risk. If you would invest  34,066  in Alaska Air Group, on October 10, 2024 and sell it today you would earn a total of  5,994  from holding Alaska Air Group, or generate 17.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Alaska Air Group,  vs.  American Express

Alaska Air Group,

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group, are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Alaska Air sustained solid returns over the last few months and may actually be approaching a breakup point.

American Express

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Alaska Air and American Express

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

The idea behind Alaska Air Group, and American Express 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.