Correlation Between American Airlines and Tower Semiconductor

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

Diversification Opportunities for American Airlines and Tower Semiconductor

0.67

Correlation Coefficient

American Airlines  Tower Semiconductor

Poor diversification

The 3 months correlation between American and Tower is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of American Airlines i.e., American Airlines and Tower Semiconductor go up and down completely randomly.

Pair Corralation between American Airlines and Tower Semiconductor

Considering the 90-day investment horizon American Airlines Group is expected to under-perform the Tower Semiconductor. But the stock apears to be less risky and, when comparing its historical volatility, American Airlines Group is 1.29 times less risky than Tower Semiconductor. The stock trades about -0.46 of its potential returns per unit of risk. The Tower Semiconductor is currently generating about -0.3 of returns per unit of risk over similar time horizon. If you would invest  4,889  in Tower Semiconductor on December 2, 2024 and sell it today you would lose (639.00) from holding Tower Semiconductor or give up 13.07% of portfolio value over 90 days.

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

American Airlines Group  vs.  Tower Semiconductor

American Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Tower Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tower Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with American Airlines and Tower Semiconductor

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

The idea behind American Airlines Group and Tower Semiconductor 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.