Correlation Between Air Canada and Xero

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

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

Diversification Opportunities for Air Canada and Xero

0.89

Correlation Coefficient

Air Canada  Xero

Very poor diversification

The 3 months correlation between Air and Xero is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Xero in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xero 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 Xero. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xero has no effect on the direction of Air Canada i.e., Air Canada and Xero go up and down completely randomly.

Pair Corralation between Air Canada and Xero

Assuming the 90 days trading horizon Air Canada is expected to generate 1.67 times more return on investment than Xero. However, Air Canada is 1.67 times more volatile than Xero. It trades about 0.18 of its potential returns per unit of risk. Xero is currently generating about 0.09 per unit of risk. If you would invest  1,086  in Air Canada on September 27, 2024 and sell it today you would earn a total of  381.00  from holding Air Canada or generate 35.08% return on investment over 90 days.

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

Air Canada  vs.  Xero

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 comparatively uncertain basic indicators, Air Canada unveiled solid returns over the last few months and may actually be approaching a breakup point.

Xero

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xero may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Air Canada and Xero

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

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