Correlation Between Air Lease and Knife River

Can any of the company-specific risk be diversified away by investing in both Air Lease and Knife River 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 Air Lease and Knife River into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Lease and Knife River, you can compare the effects of market volatilities on Air Lease and Knife River 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 Air Lease with a short position of Knife River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Lease and Knife River.

Diversification Opportunities for Air Lease and Knife River

0.87

Correlation Coefficient

Air Lease  Knife River

Very poor diversification

The 3 months correlation between Air and Knife is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and Air Lease 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 Air Lease are associated (or correlated) with Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Air Lease i.e., Air Lease and Knife River go up and down completely randomly.

Pair Corralation between Air Lease and Knife River

Allowing for the 90-day total investment horizon Air Lease is expected to generate 2.29 times less return on investment than Knife River. But when comparing it to its historical volatility, Air Lease is 1.5 times less risky than Knife River. It trades about 0.08 of its potential returns per unit of risk. Knife River is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8,900  in Knife River on September 23, 2024 and sell it today you would earn a total of  1,671  from holding Knife River or generate 18.78% return on investment over 90 days.

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

Air Lease  vs.  Knife River

Air Lease

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, Air Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Knife River

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knife River are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Knife River reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Lease and Knife River

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

The idea behind Air Lease and Knife River 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..