Correlation Between SkyWest and United Airlines

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

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

Diversification Opportunities for SkyWest and United Airlines

0.98

Correlation Coefficient

SkyWest  United Airlines

Almost no diversification

The 3 months correlation between SkyWest and United is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest 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 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 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 SkyWest i.e., SkyWest and United Airlines go up and down completely randomly.

Pair Corralation between SkyWest and United Airlines

Given the investment horizon of 90 days SkyWest is expected to generate 1.91 times less return on investment than United Airlines. But when comparing it to its historical volatility, SkyWest is 1.48 times less risky than United Airlines. It trades about 0.36 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.47 of returns per unit of risk over similar time horizon. If you would invest  4,387  in United Airlines Holdings on August 31, 2024 and sell it today you would earn a total of  5,248  from holding United Airlines Holdings or generate 119.63% return on investment over 90 days.

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

SkyWest  vs.  United Airlines Holdings

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.

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 SkyWest and United Airlines

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

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.