Correlation Between Alaska Air and Paramount Global

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

Diversification Opportunities for Alaska Air and Paramount Global

0.52

Correlation Coefficient

Alaska Air  Paramount Global

Very weak diversification

The 3 months correlation between Alaska and Paramount is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group, and Paramount Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Global 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 Paramount Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Global has no effect on the direction of Alaska Air i.e., Alaska Air and Paramount Global go up and down completely randomly.

Pair Corralation between Alaska Air and Paramount Global

Assuming the 90 days trading horizon Alaska Air Group, is expected to under-perform the Paramount Global. In addition to that, Alaska Air is 1.23 times more volatile than Paramount Global. It trades about -0.12 of its total potential returns per unit of risk. Paramount Global is currently generating about -0.11 per unit of volatility. If you would invest  6,438  in Paramount Global on October 23, 2024 and sell it today you would lose (168.00) from holding Paramount Global or give up 2.61% of portfolio value over 90 days.

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

Alaska Air Group,  vs.  Paramount Global

Alaska Air Group,

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group, are ranked lower than 14 (%) 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.

Paramount Global

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Global are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Paramount Global may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Alaska Air and Paramount Global

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

The idea behind Alaska Air Group, and Paramount Global 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.