Correlation Between Air Transport and RWE AG

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

Diversification Opportunities for Air Transport and RWE AG

-0.32

Correlation Coefficient

Air Transport  RWE AG

Very good diversification

The 3 months correlation between Air and RWE is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and RWE AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG 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 RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG has no effect on the direction of Air Transport i.e., Air Transport and RWE AG go up and down completely randomly.

Pair Corralation between Air Transport and RWE AG

Assuming the 90 days horizon Air Transport is expected to generate 1.27 times less return on investment than RWE AG. But when comparing it to its historical volatility, Air Transport Services is 3.12 times less risky than RWE AG. It trades about 0.11 of its potential returns per unit of risk. RWE AG is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,858  in RWE AG on October 25, 2024 and sell it today you would earn a total of  31.00  from holding RWE AG or generate 1.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Air Transport Services  vs.  RWE AG

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 fragile basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

RWE AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, RWE AG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Air Transport and RWE AG

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

The idea behind Air Transport Services and RWE AG 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.