Correlation Between Air Transport and Transcontinental

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

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

Diversification Opportunities for Air Transport and Transcontinental

0.33

Correlation Coefficient

Air Transport  Transcontinental

Weak diversification

The 3 months correlation between Air and Transcontinental is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and Transcontinental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcontinental and Air Transport 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 Transport Services are associated (or correlated) with Transcontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcontinental has no effect on the direction of Air Transport i.e., Air Transport and Transcontinental go up and down completely randomly.

Pair Corralation between Air Transport and Transcontinental

Assuming the 90 days horizon Air Transport is expected to generate 8.23 times less return on investment than Transcontinental. But when comparing it to its historical volatility, Air Transport Services is 2.84 times less risky than Transcontinental. It trades about 0.05 of its potential returns per unit of risk. Transcontinental is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,119  in Transcontinental on October 25, 2024 and sell it today you would earn a total of  91.00  from holding Transcontinental or generate 8.13% return on investment over 90 days.

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

Air Transport Services  vs.  Transcontinental

Air Transport Services

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Transcontinental

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transcontinental are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Transcontinental may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Air Transport and Transcontinental

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

The idea behind Air Transport Services and Transcontinental 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.