Correlation Between Air Lease and ARCA Oil

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

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

Diversification Opportunities for Air Lease and ARCA Oil

-0.07

Correlation Coefficient

Air Lease  ARCA Oil

Good diversification

The 3 months correlation between Air and ARCA is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and ARCA Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Oil 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 ARCA Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Oil has no effect on the direction of Air Lease i.e., Air Lease and ARCA Oil go up and down completely randomly.

Pair Corralation between Air Lease and ARCA Oil

Allowing for the 90-day total investment horizon Air Lease is expected to under-perform the ARCA Oil. In addition to that, Air Lease is 2.42 times more volatile than ARCA Oil. It trades about -0.13 of its total potential returns per unit of risk. ARCA Oil is currently generating about 0.96 per unit of volatility. If you would invest  171,348  in ARCA Oil on October 23, 2024 and sell it today you would earn a total of  21,674  from holding ARCA Oil or generate 12.65% return on investment over 90 days.

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

Air Lease  vs.  ARCA Oil

Pair Trading with Air Lease and ARCA Oil

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

The idea behind Air Lease and ARCA Oil 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.