Correlation Between Air Canada and Tree Island

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

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

Diversification Opportunities for Air Canada and Tree Island

0.67

Correlation Coefficient

Air Canada  Tree Island

Poor diversification

The 3 months correlation between Air and Tree is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Tree Island Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree Island Steel 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 Tree Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree Island Steel has no effect on the direction of Air Canada i.e., Air Canada and Tree Island go up and down completely randomly.

Pair Corralation between Air Canada and Tree Island

Assuming the 90 days horizon Air Canada is expected to generate 0.93 times more return on investment than Tree Island. However, Air Canada is 1.07 times less risky than Tree Island. It trades about 0.33 of its potential returns per unit of risk. Tree Island Steel is currently generating about 0.12 per unit of risk. If you would invest  1,521  in Air Canada on August 31, 2024 and sell it today you would earn a total of  961.00  from holding Air Canada or generate 63.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Air Canada  vs.  Tree Island Steel

Air Canada

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 26 (%) 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.

Tree Island Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tree Island Steel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal essential indicators, Tree Island displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Canada and Tree Island

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

The idea behind Air Canada and Tree Island Steel 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.