Correlation Between Air T and Franchise

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Can any of the company-specific risk be diversified away by investing in both Air T and Franchise 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 T and Franchise into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air T Inc and Franchise Group, you can compare the effects of market volatilities on Air T and Franchise 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 T with a short position of Franchise. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air T and Franchise.

Diversification Opportunities for Air T and Franchise

0.56
  Correlation Coefficient

Very weak diversification

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

Pair Corralation between Air T and Franchise

Assuming the 90 days horizon Air T is expected to generate 1.47 times less return on investment than Franchise. In addition to that, Air T is 2.22 times more volatile than Franchise Group. It trades about 0.02 of its total potential returns per unit of risk. Franchise Group is currently generating about 0.08 per unit of volatility. If you would invest  2,045  in Franchise Group on September 24, 2024 and sell it today you would earn a total of  448.00  from holding Franchise Group or generate 21.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy29.91%
ValuesDaily Returns

Air T Inc  vs.  Franchise Group

 Performance 
       Timeline  
Air T Inc 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Air T Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Air T is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.
Franchise Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Franchise Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Franchise is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Air T and Franchise Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Air T and Franchise

The main advantage of trading using opposite Air T and Franchise positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air T position performs unexpectedly, Franchise 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 Franchise will offset losses from the drop in Franchise's long position.
The idea behind Air T Inc and Franchise Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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