Correlation Between American Airlines and Fast Retailing

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

Diversification Opportunities for American Airlines and Fast Retailing

0.12

Correlation Coefficient

American Airlines  Fast Retailing

Average diversification

The 3 months correlation between American and Fast is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Fast Retailing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Retailing 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 Fast Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fast Retailing has no effect on the direction of American Airlines i.e., American Airlines and Fast Retailing go up and down completely randomly.

Pair Corralation between American Airlines and Fast Retailing

Considering the 90-day investment horizon American Airlines is expected to generate 1.53 times less return on investment than Fast Retailing. In addition to that, American Airlines is 1.15 times more volatile than Fast Retailing Co. It trades about 0.04 of its total potential returns per unit of risk. Fast Retailing Co is currently generating about 0.07 per unit of volatility. If you would invest  24,795  in Fast Retailing Co on September 17, 2024 and sell it today you would earn a total of  8,465  from holding Fast Retailing Co or generate 34.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.26%
Values	Daily Returns

American Airlines Group  vs.  Fast Retailing Co

American Airlines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Fast Retailing

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fast Retailing Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fast Retailing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Airlines and Fast Retailing

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

The idea behind American Airlines Group and Fast Retailing Co 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.