Correlation Between Air Canada and Transat AT

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

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

Diversification Opportunities for Air Canada and Transat AT

0.56

Correlation Coefficient

Air Canada  Transat AT

Very weak diversification

The 3 months correlation between Air and Transat is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Transat AT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transat AT 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 Transat AT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transat AT has no effect on the direction of Air Canada i.e., Air Canada and Transat AT go up and down completely randomly.

Pair Corralation between Air Canada and Transat AT

Assuming the 90 days horizon Air Canada is expected to under-perform the Transat AT. But the stock apears to be less risky and, when comparing its historical volatility, Air Canada is 1.32 times less risky than Transat AT. The stock trades about -0.22 of its potential returns per unit of risk. The Transat AT is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  178.00  in Transat AT on September 24, 2024 and sell it today you would earn a total of  5.00  from holding Transat AT or generate 2.81% 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.  Transat AT

Air Canada

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 13 (%) 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.

Transat AT

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transat AT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Transat AT is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Air Canada and Transat AT

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

The idea behind Air Canada and Transat AT 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.