Correlation Between Aflac Incorporated and American Airlines

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

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

Diversification Opportunities for Aflac Incorporated and American Airlines

-0.1

Correlation Coefficient

Aflac Incorporated  American Airlines

Good diversification

The 3 months correlation between Aflac and American is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Aflac Incorporated and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Aflac Incorporated 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 Aflac Incorporated 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 Aflac Incorporated i.e., Aflac Incorporated and American Airlines go up and down completely randomly.

Pair Corralation between Aflac Incorporated and American Airlines

Considering the 90-day investment horizon Aflac Incorporated is expected to generate 2.37 times less return on investment than American Airlines. But when comparing it to its historical volatility, Aflac Incorporated is 1.91 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 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,344  in American Airlines Group on January 31, 2024 and sell it today you would earn a total of  54.00  from holding American Airlines Group or generate 4.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.8%
Values	Daily Returns

Aflac Incorporated  vs.  American Airlines Group

Aflac Incorporated

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Aflac Incorporated and American Airlines

The main advantage of trading using opposite Aflac Incorporated and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aflac Incorporated 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 Aflac Incorporated 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .