Correlation Between Route1 and AirIQ

Can any of the company-specific risk be diversified away by investing in both Route1 and AirIQ 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 Route1 and AirIQ into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Route1 Inc and AirIQ Inc, you can compare the effects of market volatilities on Route1 and AirIQ 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 Route1 with a short position of AirIQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Route1 and AirIQ.

Diversification Opportunities for Route1 and AirIQ

-0.43

Correlation Coefficient

Route1  AirIQ

Very good diversification

The 3 months correlation between Route1 and AirIQ is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Route1 Inc and AirIQ Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AirIQ Inc and Route1 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 Route1 Inc are associated (or correlated) with AirIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AirIQ Inc has no effect on the direction of Route1 i.e., Route1 and AirIQ go up and down completely randomly.

Pair Corralation between Route1 and AirIQ

Assuming the 90 days horizon Route1 Inc is expected to generate 1.93 times more return on investment than AirIQ. However, Route1 is 1.93 times more volatile than AirIQ Inc. It trades about 0.38 of its potential returns per unit of risk. AirIQ Inc is currently generating about -0.03 per unit of risk. If you would invest  2.00  in Route1 Inc on September 17, 2024 and sell it today you would earn a total of  3.00  from holding Route1 Inc or generate 150.0% return on investment over 90 days.

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

Route1 Inc  vs.  AirIQ Inc

Route1 Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Route1 Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Route1 showed solid returns over the last few months and may actually be approaching a breakup point.

AirIQ Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AirIQ Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AirIQ is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Route1 and AirIQ

The main advantage of trading using opposite Route1 and AirIQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Route1 position performs unexpectedly, AirIQ 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 AirIQ will offset losses from the drop in AirIQ's long position.

The idea behind Route1 Inc and AirIQ 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.