Correlation Between US Financial and Air Canada

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

By analyzing existing cross correlation between US Financial 15 and Air Canada, you can compare the effects of market volatilities on US Financial and Air Canada 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 US Financial with a short position of Air Canada. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and Air Canada.

Diversification Opportunities for US Financial and Air Canada

0.91

Correlation Coefficient

US Financial  Air Canada

Almost no diversification

The 3 months correlation between FTU-PB and Air is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada and US Financial 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 US Financial 15 are associated (or correlated) with Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of US Financial i.e., US Financial and Air Canada go up and down completely randomly.

Pair Corralation between US Financial and Air Canada

Assuming the 90 days trading horizon US Financial is expected to generate 2.22 times less return on investment than Air Canada. But when comparing it to its historical volatility, US Financial 15 is 1.46 times less risky than Air Canada. It trades about 0.13 of its potential returns per unit of risk. Air Canada is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,596  in Air Canada on September 23, 2024 and sell it today you would earn a total of  600.00  from holding Air Canada or generate 37.59% return on investment over 90 days.

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

US Financial 15  vs.  Air Canada

US Financial 15

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, US Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Air Canada

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Air Canada displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Financial and Air Canada

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

The idea behind US Financial 15 and Air Canada 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.