Correlation Between LB Foster and United Airlines

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

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

Diversification Opportunities for LB Foster and United Airlines

0.74

Correlation Coefficient

LB Foster  United Airlines

Poor diversification

The 3 months correlation between FSTR and United is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster 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 LB Foster 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 LB Foster 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 LB Foster i.e., LB Foster and United Airlines go up and down completely randomly.

Pair Corralation between LB Foster and United Airlines

Given the investment horizon of 90 days LB Foster is expected to generate 2.18 times less return on investment than United Airlines. In addition to that, LB Foster is 1.09 times more volatile than United Airlines Holdings. It trades about 0.19 of its total potential returns per unit of risk. United Airlines Holdings is currently generating about 0.46 per unit of volatility. If you would invest  4,404  in United Airlines Holdings on August 30, 2024 and sell it today you would earn a total of  5,231  from holding United Airlines Holdings or generate 118.78% return on investment over 90 days.

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

LB Foster  vs.  United Airlines Holdings

LB Foster

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LB Foster are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, LB Foster reported solid returns over the last few months and may actually be approaching a breakup point.

United Airlines Holdings

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LB Foster and United Airlines

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

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.