Correlation Between Alaska Air and Northern Graphite

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

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

Diversification Opportunities for Alaska Air and Northern Graphite

0.65

Correlation Coefficient

Alaska Air  Northern Graphite

Poor diversification

The 3 months correlation between Alaska and Northern is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Northern Graphite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Graphite and Alaska Air 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 Alaska Air Group are associated (or correlated) with Northern Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Graphite has no effect on the direction of Alaska Air i.e., Alaska Air and Northern Graphite go up and down completely randomly.

Pair Corralation between Alaska Air and Northern Graphite

Assuming the 90 days trading horizon Alaska Air Group is expected to under-perform the Northern Graphite. But the stock apears to be less risky and, when comparing its historical volatility, Alaska Air Group is 3.56 times less risky than Northern Graphite. The stock trades about -0.17 of its potential returns per unit of risk. The Northern Graphite is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  9.02  in Northern Graphite on December 23, 2024 and sell it today you would lose (3.02) from holding Northern Graphite or give up 33.48% of portfolio value over 90 days.

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

Alaska Air Group  vs.  Northern Graphite

Alaska Air Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alaska Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Northern Graphite

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Graphite has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Alaska Air and Northern Graphite

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

The idea behind Alaska Air Group and Northern Graphite 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.