Correlation Between Chevron Corp and American Airlines

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

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

Diversification Opportunities for Chevron Corp and American Airlines

0.85

Correlation Coefficient

Chevron Corp  American Airlines

Very poor diversification

The 3 months correlation between Chevron and American is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and American Airlines go up and down completely randomly.

Pair Corralation between Chevron Corp and American Airlines

Considering the 90-day investment horizon Chevron Corp is expected to generate 4.49 times less return on investment than American Airlines. But when comparing it to its historical volatility, Chevron Corp is 1.89 times less risky than American Airlines. It trades about 0.04 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,153  in American Airlines Group on September 1, 2024 and sell it today you would earn a total of  299.00  from holding American Airlines Group or generate 25.93% return on investment over 90 days.

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

Chevron Corp  vs.  American Airlines Group

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

American Airlines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chevron Corp and American Airlines

The main advantage of trading using opposite Chevron Corp and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.