Correlation Between Diamond Offshore and American Airlines

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

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

Diversification Opportunities for Diamond Offshore and American Airlines

-0.57

Correlation Coefficient

Diamond Offshore  American Airlines

Excellent diversification

The 3 months correlation between Diamond and American is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Offshore Drilling and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Diamond Offshore 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 Diamond Offshore Drilling 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 Diamond Offshore i.e., Diamond Offshore and American Airlines go up and down completely randomly.

Pair Corralation between Diamond Offshore and American Airlines

Allowing for the 90-day total investment horizon Diamond Offshore Drilling is expected to generate 1.11 times more return on investment than American Airlines. However, Diamond Offshore is 1.11 times more volatile than American Airlines Group. It trades about 0.04 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.03 per unit of risk. If you would invest  1,169  in Diamond Offshore Drilling on February 2, 2024 and sell it today you would earn a total of  60.00  from holding Diamond Offshore Drilling or generate 5.13% return on investment over 90 days.

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

Diamond Offshore Drilling  vs.  American Airlines Group

Diamond Offshore Drilling

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Offshore Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Diamond Offshore may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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 Diamond Offshore and American Airlines

The main advantage of trading using opposite Diamond Offshore and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Offshore 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 Diamond Offshore Drilling 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.