Correlation Between American Airlines and Renesas Electronics

Can any of the company-specific risk be diversified away by investing in both American Airlines and Renesas Electronics 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 Renesas Electronics 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 Renesas Electronics, you can compare the effects of market volatilities on American Airlines and Renesas Electronics 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 Renesas Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Renesas Electronics.

Diversification Opportunities for American Airlines and Renesas Electronics

-0.61

Correlation Coefficient

American Airlines  Renesas Electronics

Excellent diversification

The 3 months correlation between American and Renesas is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas Electronics 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of American Airlines i.e., American Airlines and Renesas Electronics go up and down completely randomly.

Pair Corralation between American Airlines and Renesas Electronics

Assuming the 90 days horizon American Airlines Group is expected to generate 0.84 times more return on investment than Renesas Electronics. However, American Airlines Group is 1.19 times less risky than Renesas Electronics. It trades about 0.02 of its potential returns per unit of risk. Renesas Electronics is currently generating about -0.02 per unit of risk. If you would invest  1,570  in American Airlines Group on September 12, 2024 and sell it today you would earn a total of  64.00  from holding American Airlines Group or generate 4.08% return on investment over 90 days.

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

American Airlines Group  vs.  Renesas Electronics

American Airlines

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Airlines and Renesas Electronics

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

The idea behind American Airlines Group and Renesas Electronics 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.