Correlation Between Alaska Air and NOVAGOLD RESOURCES

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

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

Diversification Opportunities for Alaska Air and NOVAGOLD RESOURCES

0.79

Correlation Coefficient

Alaska Air  NOVAGOLD RESOURCES

Poor diversification

The 3 months correlation between Alaska and NOVAGOLD is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Alaska Air Group and NOVAGOLD RESOURCES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVAGOLD RESOURCES and Alaska Air 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 Alaska Air Group are associated (or correlated) with NOVAGOLD RESOURCES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVAGOLD RESOURCES has no effect on the direction of Alaska Air i.e., Alaska Air and NOVAGOLD RESOURCES go up and down completely randomly.

Pair Corralation between Alaska Air and NOVAGOLD RESOURCES

Assuming the 90 days trading horizon Alaska Air Group is expected to generate 0.63 times more return on investment than NOVAGOLD RESOURCES. However, Alaska Air Group is 1.59 times less risky than NOVAGOLD RESOURCES. It trades about 0.08 of its potential returns per unit of risk. NOVAGOLD RESOURCES is currently generating about -0.05 per unit of risk. If you would invest  3,850  in Alaska Air Group on February 4, 2024 and sell it today you would earn a total of  134.00  from holding Alaska Air Group or generate 3.48% return on investment over 90 days.

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

Alaska Air Group  vs.  NOVAGOLD RESOURCES

Alaska Air Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alaska Air unveiled solid returns over the last few months and may actually be approaching a breakup point.

NOVAGOLD RESOURCES

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NOVAGOLD RESOURCES are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, NOVAGOLD RESOURCES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alaska Air and NOVAGOLD RESOURCES

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

The idea behind Alaska Air Group and NOVAGOLD RESOURCES 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 Global Correlations module to find global opportunities by holding instruments from different markets.