Correlation Between American Airlines and Boeing

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

Diversification Opportunities for American Airlines and Boeing

0.81

Correlation Coefficient

American Airlines  Boeing

Very poor diversification

The 3 months correlation between American and Boeing is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of American Airlines i.e., American Airlines and Boeing go up and down completely randomly.

Pair Corralation between American Airlines and Boeing

Assuming the 90 days trading horizon American Airlines Group is expected to generate 2.39 times more return on investment than Boeing. However, American Airlines is 2.39 times more volatile than The Boeing. It trades about 0.28 of its potential returns per unit of risk. The Boeing is currently generating about 0.61 per unit of risk. If you would invest  8,538  in American Airlines Group on September 27, 2024 and sell it today you would earn a total of  2,133  from holding American Airlines Group or generate 24.98% return on investment over 90 days.

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

American Airlines Group  vs.  The Boeing

American Airlines

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 23 (%) 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.

Boeing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Boeing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Airlines and Boeing

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

The idea behind American Airlines Group and The Boeing 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.