Correlation Between Air Lease and McGrath RentCorp

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

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

Diversification Opportunities for Air Lease and McGrath RentCorp

-0.74

Correlation Coefficient

Air Lease  McGrath RentCorp

Pay attention - limited upside

The 3 months correlation between Air and McGrath is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and McGrath RentCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McGrath RentCorp and Air Lease 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 Air Lease are associated (or correlated) with McGrath RentCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McGrath RentCorp has no effect on the direction of Air Lease i.e., Air Lease and McGrath RentCorp go up and down completely randomly.

Pair Corralation between Air Lease and McGrath RentCorp

Allowing for the 90-day total investment horizon Air Lease is expected to generate 1.73 times more return on investment than McGrath RentCorp. However, Air Lease is 1.73 times more volatile than McGrath RentCorp. It trades about 0.03 of its potential returns per unit of risk. McGrath RentCorp is currently generating about -0.16 per unit of risk. If you would invest  4,855  in Air Lease on February 12, 2024 and sell it today you would earn a total of  55.00  from holding Air Lease or generate 1.13% return on investment over 90 days.

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

Air Lease  vs.  McGrath RentCorp

Air Lease

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Air Lease disclosed solid returns over the last few months and may actually be approaching a breakup point.

McGrath RentCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McGrath RentCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in June 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Air Lease and McGrath RentCorp

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

The idea behind Air Lease and McGrath RentCorp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.