Correlation Between Air Canada and Energy Fuels

Can any of the company-specific risk be diversified away by investing in both Air Canada and Energy Fuels 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 Air Canada and Energy Fuels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Canada and Energy Fuels, you can compare the effects of market volatilities on Air Canada and Energy Fuels 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 Air Canada with a short position of Energy Fuels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and Energy Fuels.

Diversification Opportunities for Air Canada and Energy Fuels

0.53

Correlation Coefficient

Air Canada  Energy Fuels

Very weak diversification

The 3 months correlation between Air and Energy is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Fuels and Air Canada 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 Air Canada are associated (or correlated) with Energy Fuels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Fuels has no effect on the direction of Air Canada i.e., Air Canada and Energy Fuels go up and down completely randomly.

Pair Corralation between Air Canada and Energy Fuels

Assuming the 90 days horizon Air Canada is expected to under-perform the Energy Fuels. But the stock apears to be less risky and, when comparing its historical volatility, Air Canada is 1.57 times less risky than Energy Fuels. The stock trades about -0.03 of its potential returns per unit of risk. The Energy Fuels is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  824.00  in Energy Fuels on October 7, 2024 and sell it today you would earn a total of  4.00  from holding Energy Fuels or generate 0.49% return on investment over 90 days.

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

Air Canada  vs.  Energy Fuels

Air Canada

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada displayed solid returns over the last few months and may actually be approaching a breakup point.

Energy Fuels

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fuels are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Energy Fuels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Canada and Energy Fuels

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

The idea behind Air Canada and Energy Fuels 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.

Check out your portfolio center.

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.