Correlation Between Boeing and American Nortel

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

By analyzing existing cross correlation between The Boeing and American Nortel Communications, you can compare the effects of market volatilities on Boeing and American Nortel 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 Boeing with a short position of American Nortel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and American Nortel.

Diversification Opportunities for Boeing and American Nortel

0.05

Correlation Coefficient

Boeing  American Nortel

Significant diversification

The 3 months correlation between Boeing and American is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and American Nortel Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Nortel Comm and Boeing 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 The Boeing are associated (or correlated) with American Nortel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Nortel Comm has no effect on the direction of Boeing i.e., Boeing and American Nortel go up and down completely randomly.

Pair Corralation between Boeing and American Nortel

Allowing for the 90-day total investment horizon Boeing is expected to generate 4.57 times less return on investment than American Nortel. But when comparing it to its historical volatility, The Boeing is 3.09 times less risky than American Nortel. It trades about 0.02 of its potential returns per unit of risk. American Nortel Communications is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2.30  in American Nortel Communications on December 26, 2024 and sell it today you would lose (0.04) from holding American Nortel Communications or give up 1.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

The Boeing  vs.  American Nortel Communications

Boeing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Boeing is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Nortel Comm

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Nortel Communications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, American Nortel displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boeing and American Nortel

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

The idea behind The Boeing and American Nortel Communications 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.