Correlation Between BJs Restaurants and American Airlines

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

By analyzing existing cross correlation between BJs Restaurants and American Airlines Group, you can compare the effects of market volatilities on BJs Restaurants and American Airlines 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 BJs Restaurants with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Restaurants and American Airlines.

Diversification Opportunities for BJs Restaurants and American Airlines

0.75

Correlation Coefficient

BJs Restaurants  American Airlines

Poor diversification

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

Pair Corralation between BJs Restaurants and American Airlines

Given the investment horizon of 90 days BJs Restaurants is expected to generate 3.22 times less return on investment than American Airlines. But when comparing it to its historical volatility, BJs Restaurants is 1.19 times less risky than American Airlines. It trades about 0.09 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,081  in American Airlines Group on September 14, 2024 and sell it today you would earn a total of  643.00  from holding American Airlines Group or generate 59.48% return on investment over 90 days.

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

BJs Restaurants  vs.  American Airlines Group

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.

American Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 19 (%) 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.

Pair Trading with BJs Restaurants and American Airlines

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

The idea behind BJs Restaurants and American Airlines Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.