Correlation Between American Airlines and Agilent Technologies

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

Diversification Opportunities for American Airlines and Agilent Technologies

0.38

Correlation Coefficient

American Airlines  Agilent Technologies

Weak diversification

The 3 months correlation between American and Agilent is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Agilent Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies 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 Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of American Airlines i.e., American Airlines and Agilent Technologies go up and down completely randomly.

Pair Corralation between American Airlines and Agilent Technologies

Assuming the 90 days trading horizon American Airlines Group is expected to generate 1.66 times more return on investment than Agilent Technologies. However, American Airlines is 1.66 times more volatile than Agilent Technologies. It trades about 0.24 of its potential returns per unit of risk. Agilent Technologies is currently generating about 0.09 per unit of risk. If you would invest  6,026  in American Airlines Group on September 2, 2024 and sell it today you would earn a total of  2,712  from holding American Airlines Group or generate 45.0% return on investment over 90 days.

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

American Airlines Group  vs.  Agilent Technologies

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 somewhat weak essential indicators, American Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Agilent Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Agilent Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Airlines and Agilent Technologies

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

The idea behind American Airlines Group and Agilent Technologies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.