Correlation Between United Airlines and American Airlines

Can any of the company-specific risk be diversified away by investing in both United Airlines 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 United Airlines and American Airlines 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 American Airlines Group, you can compare the effects of market volatilities on United Airlines 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 United Airlines with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Airlines and American Airlines.

Diversification Opportunities for United Airlines and American Airlines

0.5

Correlation Coefficient

United Airlines  American Airlines

Very weak diversification

The 3 months correlation between United and American is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 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 United Airlines i.e., United Airlines and American Airlines go up and down completely randomly.

Pair Corralation between United Airlines and American Airlines

Considering the 90-day investment horizon United Airlines is expected to generate 2.8 times less return on investment than American Airlines. But when comparing it to its historical volatility, United Airlines Holdings is 1.22 times less risky than American Airlines. It trades about 0.02 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,452  in American Airlines Group on November 29, 2024 and sell it today you would earn a total of  61.00  from holding American Airlines Group or generate 4.2% return on investment over 90 days.

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

United Airlines Holdings  vs.  American Airlines Group

United Airlines Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, United Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

American Airlines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, American Airlines may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with United Airlines and American Airlines

The main advantage of trading using opposite United Airlines and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines 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 United Airlines Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.