Correlation Between Gold Road and United Airlines

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

By analyzing existing cross correlation between Gold Road Resources and United Airlines Holdings, you can compare the effects of market volatilities on Gold Road and United 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 Gold Road with a short position of United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gold Road and United Airlines.

Diversification Opportunities for Gold Road and United Airlines

0.75

Correlation Coefficient

Gold Road  United Airlines

Poor diversification

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

Pair Corralation between Gold Road and United Airlines

Assuming the 90 days horizon Gold Road is expected to generate 2.63 times less return on investment than United Airlines. But when comparing it to its historical volatility, Gold Road Resources is 1.31 times less risky than United Airlines. It trades about 0.2 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  4,511  in United Airlines Holdings on September 15, 2024 and sell it today you would earn a total of  4,889  from holding United Airlines Holdings or generate 108.38% return on investment over 90 days.

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

Gold Road Resources  vs.  United Airlines Holdings

Gold Road Resources

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gold Road reported solid returns over the last few months and may actually be approaching a breakup point.

United Airlines Holdings

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, United Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gold Road and United Airlines

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

The idea behind Gold Road Resources and United Airlines Holdings 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.