Correlation Between Alaska Air and CAPITAL

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

Diversification Opportunities for Alaska Air and CAPITAL

0.28

Correlation Coefficient

Alaska Air  CAPITAL

Modest diversification

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

Pair Corralation between Alaska Air and CAPITAL

Considering the 90-day investment horizon Alaska Air Group is expected to under-perform the CAPITAL. In addition to that, Alaska Air is 15.34 times more volatile than CAPITAL ONE FINL. It trades about -0.12 of its total potential returns per unit of risk. CAPITAL ONE FINL is currently generating about -0.1 per unit of volatility. If you would invest  9,973  in CAPITAL ONE FINL on December 29, 2024 and sell it today you would lose (105.00) from holding CAPITAL ONE FINL or give up 1.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Alaska Air Group  vs.  CAPITAL ONE FINL

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 abnormal 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.

CAPITAL ONE FINL

Risk-Adjusted Performance

Insignificant

Over the last 90 days CAPITAL ONE FINL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CAPITAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alaska Air and CAPITAL

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

The idea behind Alaska Air Group and CAPITAL ONE FINL 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.