Correlation Between Diversified Energy and United Airlines

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

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

Diversification Opportunities for Diversified Energy and United Airlines

0.86

Correlation Coefficient

Diversified Energy  United Airlines

Very poor diversification

The 3 months correlation between Diversified and United is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Energy 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 Diversified Energy 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 Diversified Energy 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 Diversified Energy i.e., Diversified Energy and United Airlines go up and down completely randomly.

Pair Corralation between Diversified Energy and United Airlines

Assuming the 90 days trading horizon Diversified Energy is expected to generate 1.74 times less return on investment than United Airlines. But when comparing it to its historical volatility, Diversified Energy is 1.14 times less risky than United Airlines. It trades about 0.29 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  4,545  in United Airlines Holdings on September 5, 2024 and sell it today you would earn a total of  5,080  from holding United Airlines Holdings or generate 111.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Diversified Energy  vs.  United Airlines Holdings

Diversified Energy

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

United Airlines Holdings

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, United Airlines unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diversified Energy and United Airlines

The main advantage of trading using opposite Diversified Energy and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Energy 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 Diversified Energy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.