Correlation Between Alaska Air and Union Pacific

Can any of the company-specific risk be diversified away by investing in both Alaska Air and Union Pacific 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 Union Pacific 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 Union Pacific, you can compare the effects of market volatilities on Alaska Air and Union Pacific 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 Union Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alaska Air and Union Pacific.

Diversification Opportunities for Alaska Air and Union Pacific

0.39

Correlation Coefficient

Alaska Air  Union Pacific

Weak diversification

The 3 months correlation between Alaska and Union is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Alaska Air i.e., Alaska Air and Union Pacific go up and down completely randomly.

Pair Corralation between Alaska Air and Union Pacific

Considering the 90-day investment horizon Alaska Air Group is expected to under-perform the Union Pacific. In addition to that, Alaska Air is 2.05 times more volatile than Union Pacific. It trades about -0.12 of its total potential returns per unit of risk. Union Pacific is currently generating about 0.04 per unit of volatility. If you would invest  22,897  in Union Pacific on December 25, 2024 and sell it today you would earn a total of  623.00  from holding Union Pacific or generate 2.72% return on investment over 90 days.

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

Alaska Air Group  vs.  Union Pacific

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. Despite conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Union Pacific

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Union Pacific are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Alaska Air and Union Pacific

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

The idea behind Alaska Air Group and Union Pacific 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.