Correlation Between Clover Health and American Airlines

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

By analyzing existing cross correlation between Clover Health Investments, and American Airlines Group, you can compare the effects of market volatilities on Clover Health and American 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 Clover Health with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clover Health and American Airlines.

Diversification Opportunities for Clover Health and American Airlines

-0.27

Correlation Coefficient

Clover Health  American Airlines

Very good diversification

The 3 months correlation between Clover and American is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Clover Health Investments, and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Clover Health 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 Clover Health Investments, are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Clover Health i.e., Clover Health and American Airlines go up and down completely randomly.

Pair Corralation between Clover Health and American Airlines

Assuming the 90 days trading horizon Clover Health is expected to generate 2.4 times less return on investment than American Airlines. In addition to that, Clover Health is 1.15 times more volatile than American Airlines Group. It trades about 0.09 of its total potential returns per unit of risk. American Airlines Group is currently generating about 0.25 per unit of volatility. If you would invest  7,312  in American Airlines Group on October 23, 2024 and sell it today you would earn a total of  3,702  from holding American Airlines Group or generate 50.63% return on investment over 90 days.

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

Clover Health Investments,  vs.  American Airlines Group

Clover Health Invest

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Clover Health Investments, are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Clover Health sustained solid returns over the last few months and may actually be approaching a breakup point.

American Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, American Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clover Health and American Airlines

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

The idea behind Clover Health Investments, and American Airlines Group 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.