Correlation Between United Airlines and Alphabet

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

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

Diversification Opportunities for United Airlines and Alphabet

0.8

Correlation Coefficient

United Airlines  Alphabet

Very poor diversification

The 3 months correlation between United and Alphabet is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and Alphabet Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet and United Airlines 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 United Airlines Holdings are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of United Airlines i.e., United Airlines and Alphabet go up and down completely randomly.

Pair Corralation between United Airlines and Alphabet

Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 1.44 times more return on investment than Alphabet. However, United Airlines is 1.44 times more volatile than Alphabet Inc. It trades about 0.08 of its potential returns per unit of risk. Alphabet Inc is currently generating about 0.1 per unit of risk. If you would invest  78,461  in United Airlines Holdings on September 26, 2024 and sell it today you would earn a total of  113,539  from holding United Airlines Holdings or generate 144.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

United Airlines Holdings  vs.  Alphabet Inc

United Airlines Holdings

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, United Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Alphabet

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Alphabet showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Airlines and Alphabet

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

The idea behind United Airlines Holdings and Alphabet Inc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.