Correlation Between Trade Desk and American Airlines
Can any of the company-specific risk be diversified away by investing in both Trade Desk 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 Trade Desk and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Trade Desk and American Airlines Group, you can compare the effects of market volatilities on Trade Desk 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 Trade Desk with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Trade Desk and American Airlines.
Diversification Opportunities for Trade Desk and American Airlines
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Trade and American is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Trade Desk and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Trade Desk 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 Trade Desk 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 Trade Desk i.e., Trade Desk and American Airlines go up and down completely randomly.
Pair Corralation between Trade Desk and American Airlines
Considering the 90-day investment horizon Trade Desk is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Trade Desk is 1.39 times less risky than American Airlines. The stock trades about -0.3 of its potential returns per unit of risk. The American Airlines Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 1,492 in American Airlines Group on January 23, 2024 and sell it today you would lose (39.00) from holding American Airlines Group or give up 2.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Trade Desk vs. American Airlines Group
Performance |
| Timeline |
| Trade Desk |
| American Airlines |
Trade Desk and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Trade Desk and American Airlines
The main advantage of trading using opposite Trade Desk and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trade Desk 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 Trade Desk 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.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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