Correlation Between SkyWest and Business Development

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

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

Diversification Opportunities for SkyWest and Business Development

0.6

Correlation Coefficient

SkyWest  Business Development

Poor diversification

The 3 months correlation between SkyWest and Business is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and Business Development Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business Development Corp and SkyWest 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 SkyWest are associated (or correlated) with Business Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business Development Corp has no effect on the direction of SkyWest i.e., SkyWest and Business Development go up and down completely randomly.

Pair Corralation between SkyWest and Business Development

Given the investment horizon of 90 days SkyWest is expected to generate 2.32 times more return on investment than Business Development. However, SkyWest is 2.32 times more volatile than Business Development Corp. It trades about 0.24 of its potential returns per unit of risk. Business Development Corp is currently generating about 0.05 per unit of risk. If you would invest  7,962  in SkyWest on September 15, 2024 and sell it today you would earn a total of  2,698  from holding SkyWest or generate 33.89% return on investment over 90 days.

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

SkyWest  vs.  Business Development Corp

SkyWest

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Business Development Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Business Development Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Business Development is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SkyWest and Business Development

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

The idea behind SkyWest and Business Development Corp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.