Correlation Between ANA Holdings and SkyWest

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

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

Diversification Opportunities for ANA Holdings and SkyWest

-0.71

Correlation Coefficient

ANA Holdings  SkyWest

Pay attention - limited upside

The 3 months correlation between ANA and SkyWest is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding ANA Holdings ADR and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest and ANA Holdings 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 ANA Holdings ADR are associated (or correlated) with SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of ANA Holdings i.e., ANA Holdings and SkyWest go up and down completely randomly.

Pair Corralation between ANA Holdings and SkyWest

Assuming the 90 days horizon ANA Holdings ADR is expected to under-perform the SkyWest. In addition to that, ANA Holdings is 1.39 times more volatile than SkyWest. It trades about -0.03 of its total potential returns per unit of risk. SkyWest is currently generating about 0.36 per unit of volatility. If you would invest  7,530  in SkyWest on September 2, 2024 and sell it today you would earn a total of  3,944  from holding SkyWest or generate 52.38% return on investment over 90 days.

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

ANA Holdings ADR  vs.  SkyWest

ANA Holdings ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ANA Holdings ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ANA Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SkyWest

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ANA Holdings and SkyWest

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

The idea behind ANA Holdings ADR and SkyWest 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.