Correlation Between American Airlines and RXO

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

Diversification Opportunities for American Airlines and RXO

-0.47

Correlation Coefficient

American Airlines  RXO

Very good diversification

The 3 months correlation between American and RXO is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and RXO Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RXO Inc 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 RXO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RXO Inc has no effect on the direction of American Airlines i.e., American Airlines and RXO go up and down completely randomly.

Pair Corralation between American Airlines and RXO

Considering the 90-day investment horizon American Airlines Group is expected to generate 0.54 times more return on investment than RXO. However, American Airlines Group is 1.84 times less risky than RXO. It trades about -0.08 of its potential returns per unit of risk. RXO Inc is currently generating about -0.22 per unit of risk. If you would invest  1,740  in American Airlines Group on October 7, 2024 and sell it today you would lose (43.00) from holding American Airlines Group or give up 2.47% of portfolio value over 90 days.

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

American Airlines Group  vs.  RXO Inc

American Airlines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

RXO Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RXO Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, RXO is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Airlines and RXO

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

The idea behind American Airlines Group and RXO Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.