Correlation Between American Airlines and ConocoPhillips

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

Diversification Opportunities for American Airlines and ConocoPhillips

0.02

Correlation Coefficient

American Airlines  ConocoPhillips

Significant diversification

The 3 months correlation between American and ConocoPhillips is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of American Airlines i.e., American Airlines and ConocoPhillips go up and down completely randomly.

Pair Corralation between American Airlines and ConocoPhillips

Assuming the 90 days trading horizon American Airlines Group is expected to generate 1.29 times more return on investment than ConocoPhillips. However, American Airlines is 1.29 times more volatile than ConocoPhillips. It trades about 0.13 of its potential returns per unit of risk. ConocoPhillips is currently generating about 0.16 per unit of risk. If you would invest  10,671  in American Airlines Group on October 24, 2024 and sell it today you would earn a total of  551.00  from holding American Airlines Group or generate 5.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

American Airlines Group  vs.  ConocoPhillips

American Airlines

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 20 (%) 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.

ConocoPhillips

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ConocoPhillips are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ConocoPhillips may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with American Airlines and ConocoPhillips

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

The idea behind American Airlines Group and ConocoPhillips 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.