Correlation Between Air Transport and United Airlines

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

Diversification Opportunities for Air Transport and United Airlines

0.84

Correlation Coefficient

Air Transport  United Airlines

Very poor diversification

The 3 months correlation between Air and United is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Air Transport i.e., Air Transport and United Airlines go up and down completely randomly.

Pair Corralation between Air Transport and United Airlines

Assuming the 90 days horizon Air Transport Services is expected to generate 0.17 times more return on investment than United Airlines. However, Air Transport Services is 5.97 times less risky than United Airlines. It trades about -0.08 of its potential returns per unit of risk. United Airlines Holdings is currently generating about -0.13 per unit of risk. If you would invest  2,100  in Air Transport Services on December 20, 2024 and sell it today you would lose (60.00) from holding Air Transport Services or give up 2.86% of portfolio value over 90 days.

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

Air Transport Services  vs.  United Airlines Holdings

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.

United Airlines Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Airlines Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Air Transport and United Airlines

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

The idea behind Air Transport Services and United Airlines Holdings 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.