Correlation Between American Airlines and BJs Restaurants

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

Diversification Opportunities for American Airlines and BJs Restaurants

0.75

Correlation Coefficient

American Airlines  BJs Restaurants

Poor diversification

The 3 months correlation between American and BJs is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of American Airlines i.e., American Airlines and BJs Restaurants go up and down completely randomly.

Pair Corralation between American Airlines and BJs Restaurants

Considering the 90-day investment horizon American Airlines Group is expected to generate 1.2 times more return on investment than BJs Restaurants. However, American Airlines is 1.2 times more volatile than BJs Restaurants. It trades about 0.24 of its potential returns per unit of risk. BJs Restaurants is currently generating about 0.09 per unit of risk. If you would invest  1,081  in American Airlines Group on September 14, 2024 and sell it today you would earn a total of  611.00  from holding American Airlines Group or generate 56.52% return on investment over 90 days.

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

American Airlines Group  vs.  BJs Restaurants

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 quite abnormal basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

BJs Restaurants

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, BJs Restaurants demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Airlines and BJs Restaurants

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

The idea behind American Airlines Group and BJs Restaurants 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.