Correlation Between Air Canada and Renoworks Software

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

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

Diversification Opportunities for Air Canada and Renoworks Software

0.9

Correlation Coefficient

Air Canada  Renoworks Software

Almost no diversification

The 3 months correlation between Air and Renoworks is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Renoworks Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renoworks Software 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 Renoworks Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renoworks Software has no effect on the direction of Air Canada i.e., Air Canada and Renoworks Software go up and down completely randomly.

Pair Corralation between Air Canada and Renoworks Software

Assuming the 90 days horizon Air Canada is expected to generate 1.05 times more return on investment than Renoworks Software. However, Air Canada is 1.05 times more volatile than Renoworks Software. It trades about -0.2 of its potential returns per unit of risk. Renoworks Software is currently generating about -0.34 per unit of risk. If you would invest  2,496  in Air Canada on September 30, 2024 and sell it today you would lose (253.00) from holding Air Canada or give up 10.14% of portfolio value over 90 days.

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

Air Canada  vs.  Renoworks Software

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.

Renoworks Software

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Renoworks Software are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Renoworks Software showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Canada and Renoworks Software

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

The idea behind Air Canada and Renoworks Software 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.