Correlation Between Air Lease and Euro Tech

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

By analyzing existing cross correlation between Air Lease and Euro Tech Holdings, you can compare the effects of market volatilities on Air Lease and Euro Tech 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 Lease with a short position of Euro Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Lease and Euro Tech.

Diversification Opportunities for Air Lease and Euro Tech

0.28

Correlation Coefficient

Air Lease  Euro Tech

Modest diversification

The 3 months correlation between Air and Euro is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Euro Tech Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Euro Tech Holdings and Air Lease 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 Lease are associated (or correlated) with Euro Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Euro Tech Holdings has no effect on the direction of Air Lease i.e., Air Lease and Euro Tech go up and down completely randomly.

Pair Corralation between Air Lease and Euro Tech

Allowing for the 90-day total investment horizon Air Lease is expected to under-perform the Euro Tech. But the stock apears to be less risky and, when comparing its historical volatility, Air Lease is 1.52 times less risky than Euro Tech. The stock trades about -0.04 of its potential returns per unit of risk. The Euro Tech Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  143.00  in Euro Tech Holdings on December 1, 2024 and sell it today you would lose (6.00) from holding Euro Tech Holdings or give up 4.2% of portfolio value over 90 days.

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

Air Lease  vs.  Euro Tech Holdings

Air Lease

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Lease has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Air Lease is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Euro Tech Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Euro Tech Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Euro Tech is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Air Lease and Euro Tech

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

The idea behind Air Lease and Euro Tech Holdings 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.