Correlation Between Air Canada and Newtek Business

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

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

Diversification Opportunities for Air Canada and Newtek Business

0.9

Correlation Coefficient

Air Canada  Newtek Business

Almost no diversification

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

Pair Corralation between Air Canada and Newtek Business

Assuming the 90 days trading horizon Air Canada is expected to generate 1.76 times more return on investment than Newtek Business. However, Air Canada is 1.76 times more volatile than Newtek Business Services. It trades about -0.24 of its potential returns per unit of risk. Newtek Business Services is currently generating about -0.45 per unit of risk. If you would invest  1,666  in Air Canada on September 27, 2024 and sell it today you would lose (199.00) from holding Air Canada or give up 11.94% 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.  Newtek Business Services

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.

Newtek Business Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Newtek Business reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Canada and Newtek Business

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

The idea behind Air Canada and Newtek Business Services 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.