Correlation Between Air Transport and International Business

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

Diversification Opportunities for Air Transport and International Business

0.2

Correlation Coefficient

Air Transport  International Business

Modest diversification

The 3 months correlation between Air and International is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Air Transport i.e., Air Transport and International Business go up and down completely randomly.

Pair Corralation between Air Transport and International Business

Assuming the 90 days horizon Air Transport Services is expected to under-perform the International Business. But the stock apears to be less risky and, when comparing its historical volatility, Air Transport Services is 3.85 times less risky than International Business. The stock trades about -0.05 of its potential returns per unit of risk. The International Business Machines is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  21,190  in International Business Machines on December 25, 2024 and sell it today you would earn a total of  1,800  from holding International Business Machines or generate 8.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Air Transport Services  vs.  International Business Machine

Air Transport Services

Risk-Adjusted Performance

Very Weak

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

International Business

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Air Transport and International Business

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

The idea behind Air Transport Services and International Business Machines 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.