Correlation Between Air Lease and Stem

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

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

Diversification Opportunities for Air Lease and Stem

-0.35

Correlation Coefficient

Air Lease  Stem

Very good diversification

The 3 months correlation between Air and Stem is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Stem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stem Inc 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 Stem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stem Inc has no effect on the direction of Air Lease i.e., Air Lease and Stem go up and down completely randomly.

Pair Corralation between Air Lease and Stem

Allowing for the 90-day total investment horizon Air Lease is expected to generate 0.16 times more return on investment than Stem. However, Air Lease is 6.31 times less risky than Stem. It trades about 0.16 of its potential returns per unit of risk. Stem Inc is currently generating about 0.01 per unit of risk. If you would invest  4,366  in Air Lease on September 3, 2024 and sell it today you would earn a total of  724.00  from holding Air Lease or generate 16.58% return on investment over 90 days.

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

Air Lease  vs.  Stem Inc

Air Lease

Risk-Adjusted Performance

12 of 100

Good

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

Stem Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Stem is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Air Lease and Stem

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

The idea behind Air Lease and Stem Inc 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.

Check out your portfolio center.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.