Correlation Between American Aires and LGL

Can any of the company-specific risk be diversified away by investing in both American Aires and LGL 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 Aires and LGL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Aires and LGL Group, you can compare the effects of market volatilities on American Aires and LGL 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 Aires with a short position of LGL. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Aires and LGL.

Diversification Opportunities for American Aires and LGL

0.23

Correlation Coefficient

American Aires  LGL

Modest diversification

The 3 months correlation between American and LGL is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding American Aires and LGL Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGL Group and American Aires 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 Aires are associated (or correlated) with LGL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGL Group has no effect on the direction of American Aires i.e., American Aires and LGL go up and down completely randomly.

Pair Corralation between American Aires and LGL

Assuming the 90 days horizon American Aires is expected to generate 4.4 times less return on investment than LGL. In addition to that, American Aires is 2.0 times more volatile than LGL Group. It trades about 0.01 of its total potential returns per unit of risk. LGL Group is currently generating about 0.06 per unit of volatility. If you would invest  576.00  in LGL Group on December 27, 2024 and sell it today you would earn a total of  56.00  from holding LGL Group or generate 9.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

American Aires  vs.  LGL Group

American Aires

Risk-Adjusted Performance

Insignificant

Over the last 90 days American Aires has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American Aires is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

LGL Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LGL Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, LGL disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Aires and LGL

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

The idea behind American Aires and LGL Group 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.