Correlation Between Alphabet and American Airlines

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

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

Diversification Opportunities for Alphabet and American Airlines

0.78

Correlation Coefficient

Alphabet  American Airlines

Poor diversification

The 3 months correlation between Alphabet and American is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and American Airlines go up and down completely randomly.

Pair Corralation between Alphabet and American Airlines

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.68 times more return on investment than American Airlines. However, Alphabet Inc Class C is 1.48 times less risky than American Airlines. It trades about 0.01 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.0 per unit of risk. If you would invest  17,278  in Alphabet Inc Class C on December 1, 2024 and sell it today you would lose (56.00) from holding Alphabet Inc Class C or give up 0.32% of portfolio value over 90 days.

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

Alphabet Inc Class C  vs.  American Airlines Group

Alphabet Class C

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc Class C has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Alphabet is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 quite persistent basic indicators, American Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Alphabet and American Airlines

The main advantage of trading using opposite Alphabet and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.