Correlation Between American Airlines and Dollar General

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

Diversification Opportunities for American Airlines and Dollar General

0.35

Correlation Coefficient

American Airlines  Dollar General

Weak diversification

The 3 months correlation between American and Dollar is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Dollar General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dollar General 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 Dollar General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dollar General has no effect on the direction of American Airlines i.e., American Airlines and Dollar General go up and down completely randomly.

Pair Corralation between American Airlines and Dollar General

Assuming the 90 days trading horizon American Airlines Group is expected to generate 0.83 times more return on investment than Dollar General. However, American Airlines Group is 1.2 times less risky than Dollar General. It trades about 0.11 of its potential returns per unit of risk. Dollar General is currently generating about -0.18 per unit of risk. If you would invest  10,450  in American Airlines Group on October 9, 2024 and sell it today you would earn a total of  327.00  from holding American Airlines Group or generate 3.13% return on investment over 90 days.

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

American Airlines Group  vs.  Dollar General

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.

Dollar General

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dollar General are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Dollar General 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 Dollar General

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

The idea behind American Airlines Group and Dollar General 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.