Correlation Between American Airlines and Apartment Investment

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

Diversification Opportunities for American Airlines and Apartment Investment

0.59

Correlation Coefficient

American Airlines  Apartment Investment

Very weak diversification

The 3 months correlation between American and Apartment is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Apartment Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apartment Investment and 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 Apartment Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apartment Investment and has no effect on the direction of American Airlines i.e., American Airlines and Apartment Investment go up and down completely randomly.

Pair Corralation between American Airlines and Apartment Investment

Assuming the 90 days trading horizon American Airlines Group is expected to generate 1.81 times more return on investment than Apartment Investment. However, American Airlines is 1.81 times more volatile than Apartment Investment and. It trades about 0.28 of its potential returns per unit of risk. Apartment Investment and is currently generating about 0.05 per unit of risk. If you would invest  5,946  in American Airlines Group on September 16, 2024 and sell it today you would earn a total of  4,214  from holding American Airlines Group or generate 70.87% return on investment over 90 days.

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

American Airlines Group  vs.  Apartment Investment and

American Airlines

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, American Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Apartment Investment and

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Apartment Investment and are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Apartment Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Airlines and Apartment Investment

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

The idea behind American Airlines Group and Apartment Investment and 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..