Correlation Between Franchise and SkyWest

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

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

Diversification Opportunities for Franchise and SkyWest

0.76

Correlation Coefficient

Franchise  SkyWest

Poor diversification

The 3 months correlation between Franchise and SkyWest is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Franchise Group and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest and Franchise 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 Franchise Group are associated (or correlated) with SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of Franchise i.e., Franchise and SkyWest go up and down completely randomly.

Pair Corralation between Franchise and SkyWest

If you would invest  9,520  in SkyWest on September 1, 2024 and sell it today you would earn a total of  1,954  from holding SkyWest or generate 20.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	4.76%
Values	Daily Returns

Franchise Group  vs.  SkyWest

Franchise Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franchise Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Franchise is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

SkyWest

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Franchise and SkyWest

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

The idea behind Franchise Group and SkyWest 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.