Correlation Between VR and American Airlines

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Can any of the company-specific risk be diversified away by investing in both VR 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 VR and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VR and American Airlines Group, you can compare the effects of market volatilities on VR 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 VR with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of VR and American Airlines.

Diversification Opportunities for VR and American Airlines

0.33
  Correlation Coefficient

Weak diversification

The 3 months correlation between VR and American is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding VR and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and VR 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 VR 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 VR i.e., VR and American Airlines go up and down completely randomly.

Pair Corralation between VR and American Airlines

Allowing for the 90-day total investment horizon VR is expected to under-perform the American Airlines. In addition to that, VR is 3.77 times more volatile than American Airlines Group. It trades about -0.08 of its total potential returns per unit of risk. American Airlines Group is currently generating about 0.02 per unit of volatility. If you would invest  1,473  in American Airlines Group on December 29, 2023 and sell it today you would earn a total of  62.00  from holding American Airlines Group or generate 4.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy82.76%
ValuesDaily Returns

VR  vs.  American Airlines Group

 Performance 
       Timeline  
VR 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days VR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Etf's basic indicators remain relatively invariable which may send shares a bit higher in April 2024. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.
American Airlines 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

VR and American Airlines Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VR and American Airlines

The main advantage of trading using opposite VR and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VR 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 VR 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.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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