Correlation Between Freeport and American Airlines

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

By analyzing existing cross correlation between Freeport McMoRan 545 percent and American Airlines Group, you can compare the effects of market volatilities on Freeport 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 Freeport with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport and American Airlines.

Diversification Opportunities for Freeport and American Airlines

-0.59

Correlation Coefficient

Freeport  American Airlines

Excellent diversification

The 3 months correlation between Freeport and American is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan 545 percent and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Freeport 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 Freeport McMoRan 545 percent 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 Freeport i.e., Freeport and American Airlines go up and down completely randomly.

Pair Corralation between Freeport and American Airlines

Assuming the 90 days trading horizon Freeport is expected to generate 10.67 times less return on investment than American Airlines. But when comparing it to its historical volatility, Freeport McMoRan 545 percent is 1.23 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 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,724  in American Airlines Group on October 13, 2024 and sell it today you would earn a total of  114.00  from holding American Airlines Group or generate 6.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Freeport McMoRan 545 percent  vs.  American Airlines Group

Freeport McMoRan 545

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 545 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freeport is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Airlines

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Freeport and American Airlines

The main advantage of trading using opposite Freeport and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport 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 Freeport McMoRan 545 percent 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.