Correlation Between SkyWest and Finnair Oyj

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

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

Diversification Opportunities for SkyWest and Finnair Oyj

-0.5

Correlation Coefficient

SkyWest  Finnair Oyj

Very good diversification

The 3 months correlation between SkyWest and Finnair is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj and SkyWest 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 SkyWest are associated (or correlated) with Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of SkyWest i.e., SkyWest and Finnair Oyj go up and down completely randomly.

Pair Corralation between SkyWest and Finnair Oyj

Given the investment horizon of 90 days SkyWest is expected to generate 0.97 times more return on investment than Finnair Oyj. However, SkyWest is 1.03 times less risky than Finnair Oyj. It trades about 0.36 of its potential returns per unit of risk. Finnair Oyj is currently generating about -0.05 per unit of risk. If you would invest  7,530  in SkyWest on September 3, 2024 and sell it today you would earn a total of  3,944  from holding SkyWest or generate 52.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

SkyWest  vs.  Finnair Oyj

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.

Finnair Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SkyWest and Finnair Oyj

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

The idea behind SkyWest and Finnair Oyj 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.