Correlation Between GM and American Airlines

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

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

Diversification Opportunities for GM and American Airlines

0.39

Correlation Coefficient

GM  American Airlines

Weak diversification

The 3 months correlation between GM and American is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and GM 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 General Motors 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 GM i.e., GM and American Airlines go up and down completely randomly.

Pair Corralation between GM and American Airlines

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.89 times more return on investment than American Airlines. However, General Motors is 1.12 times less risky than American Airlines. It trades about -0.03 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.23 per unit of risk. If you would invest  5,404  in General Motors on December 26, 2024 and sell it today you would lose (309.00) from holding General Motors or give up 5.72% of portfolio value over 90 days.

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

General Motors  vs.  American Airlines Group

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

American Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with GM and American Airlines

The main advantage of trading using opposite GM and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.