Correlation Between Air Lease and NetApp

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

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

Diversification Opportunities for Air Lease and NetApp

0.61

Correlation Coefficient

Air Lease  NetApp

Poor diversification

The 3 months correlation between Air and NetApp is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and NetApp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetApp Inc 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 NetApp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetApp Inc has no effect on the direction of Air Lease i.e., Air Lease and NetApp go up and down completely randomly.

Pair Corralation between Air Lease and NetApp

Assuming the 90 days trading horizon Air Lease is expected to generate 0.42 times more return on investment than NetApp. However, Air Lease is 2.38 times less risky than NetApp. It trades about -0.24 of its potential returns per unit of risk. NetApp Inc is currently generating about -0.11 per unit of risk. If you would invest  4,837  in Air Lease on October 5, 2024 and sell it today you would lose (217.00) from holding Air Lease or give up 4.49% of portfolio value over 90 days.

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

Air Lease  vs.  NetApp Inc

Air Lease

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Air Lease has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile essential indicators, Air Lease reported solid returns over the last few months and may actually be approaching a breakup point.

NetApp Inc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days NetApp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NetApp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Air Lease and NetApp

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

The idea behind Air Lease and NetApp Inc 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.