Correlation Between Mesa Air and Spirit Airlines

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

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

Diversification Opportunities for Mesa Air and Spirit Airlines

0.22

Correlation Coefficient

Mesa Air  Spirit Airlines

Modest diversification

The 3 months correlation between Mesa and Spirit is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Air Group and Spirit Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Airlines and Mesa Air 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 Mesa Air Group are associated (or correlated) with Spirit Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Airlines has no effect on the direction of Mesa Air i.e., Mesa Air and Spirit Airlines go up and down completely randomly.

Pair Corralation between Mesa Air and Spirit Airlines

Given the investment horizon of 90 days Mesa Air Group is expected to generate 0.33 times more return on investment than Spirit Airlines. However, Mesa Air Group is 3.06 times less risky than Spirit Airlines. It trades about -0.05 of its potential returns per unit of risk. Spirit Airlines is currently generating about -0.1 per unit of risk. If you would invest  173.00  in Mesa Air Group on September 25, 2024 and sell it today you would lose (59.00) from holding Mesa Air Group or give up 34.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.75%
Values	Daily Returns

Mesa Air Group  vs.  Spirit Airlines

Mesa Air Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Air Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Mesa Air may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Spirit Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirit Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Mesa Air and Spirit Airlines

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

The idea behind Mesa Air Group and Spirit Airlines 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.