Correlation Between American Airlines and SkyWest

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

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

Diversification Opportunities for American Airlines and SkyWest

-0.34

Correlation Coefficient

American Airlines  SkyWest

Very good diversification

The 3 months correlation between American and SkyWest is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest and American 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 American Airlines Group are associated (or correlated) with SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of American Airlines i.e., American Airlines and SkyWest go up and down completely randomly.

Pair Corralation between American Airlines and SkyWest

Considering the 90-day investment horizon American Airlines Group is expected to under-perform the SkyWest. In addition to that, American Airlines is 1.33 times more volatile than SkyWest. It trades about -0.17 of its total potential returns per unit of risk. SkyWest is currently generating about 0.17 per unit of volatility. If you would invest  6,874  in SkyWest on January 29, 2024 and sell it today you would earn a total of  492.00  from holding SkyWest or generate 7.16% return on investment over 90 days.

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

American Airlines Group  vs.  SkyWest

American Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Airlines is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

SkyWest

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Airlines and SkyWest

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

The idea behind American Airlines Group and SkyWest 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.