Correlation Between Aena SME and AerCap Holdings

Can any of the company-specific risk be diversified away by investing in both Aena SME and AerCap Holdings 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 Aena SME and AerCap Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aena SME SA and AerCap Holdings NV, you can compare the effects of market volatilities on Aena SME and AerCap Holdings 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 Aena SME with a short position of AerCap Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aena SME and AerCap Holdings.

Diversification Opportunities for Aena SME and AerCap Holdings

0.61

Correlation Coefficient

Aena SME  AerCap Holdings

Poor diversification

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

Pair Corralation between Aena SME and AerCap Holdings

Assuming the 90 days horizon Aena SME is expected to generate 1.01 times less return on investment than AerCap Holdings. But when comparing it to its historical volatility, Aena SME SA is 1.51 times less risky than AerCap Holdings. It trades about 0.23 of its potential returns per unit of risk. AerCap Holdings NV is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  8,217  in AerCap Holdings NV on September 5, 2024 and sell it today you would earn a total of  1,153  from holding AerCap Holdings NV or generate 14.03% return on investment over 90 days.

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

Aena SME SA  vs.  AerCap Holdings NV

Aena SME SA

Risk-Adjusted Performance

18 of 100

Solid

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

AerCap Holdings NV

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AerCap Holdings NV are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AerCap Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aena SME and AerCap Holdings

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

The idea behind Aena SME SA and AerCap Holdings NV 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.