Correlation Between Azul SA and Allegiant Travel

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

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

Diversification Opportunities for Azul SA and Allegiant Travel

0.63

Correlation Coefficient

Azul SA  Allegiant Travel

Poor diversification

The 3 months correlation between Azul and Allegiant is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Azul SA and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel and Azul SA 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 Azul SA are associated (or correlated) with Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of Azul SA i.e., Azul SA and Allegiant Travel go up and down completely randomly.

Pair Corralation between Azul SA and Allegiant Travel

Given the investment horizon of 90 days Azul SA is expected to generate 1.26 times more return on investment than Allegiant Travel. However, Azul SA is 1.26 times more volatile than Allegiant Travel. It trades about 0.03 of its potential returns per unit of risk. Allegiant Travel is currently generating about -0.21 per unit of risk. If you would invest  168.00  in Azul SA on December 29, 2024 and sell it today you would earn a total of  6.00  from holding Azul SA or generate 3.57% return on investment over 90 days.

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

Azul SA  vs.  Allegiant Travel

Azul SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azul SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Azul SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Allegiant Travel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allegiant Travel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Azul SA and Allegiant Travel

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

The idea behind Azul SA and Allegiant Travel 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.