Correlation Between Transocean and United Airlines

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

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

Diversification Opportunities for Transocean and United Airlines

-0.4

Correlation Coefficient

Transocean  United Airlines

Very good diversification

The 3 months correlation between Transocean and United is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Transocean 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 Transocean 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 Transocean 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 Transocean i.e., Transocean and United Airlines go up and down completely randomly.

Pair Corralation between Transocean and United Airlines

Considering the 90-day investment horizon Transocean is expected to under-perform the United Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Transocean is 1.0 times less risky than United Airlines. The stock trades about -0.12 of its potential returns per unit of risk. The United Airlines Holdings is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  5,236  in United Airlines Holdings on September 21, 2024 and sell it today you would earn a total of  4,320  from holding United Airlines Holdings or generate 82.51% return on investment over 90 days.

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

Transocean  vs.  United Airlines Holdings

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

United Airlines Holdings

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transocean and United Airlines

The main advantage of trading using opposite Transocean and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transocean 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 Transocean 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.