Correlation Between United Airlines and Dairy Farm

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

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

Diversification Opportunities for United Airlines and Dairy Farm

0.89

Correlation Coefficient

United Airlines  Dairy Farm

Very poor diversification

The 3 months correlation between United and Dairy is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International and United Airlines 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 United Airlines Holdings are associated (or correlated) with Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of United Airlines i.e., United Airlines and Dairy Farm go up and down completely randomly.

Pair Corralation between United Airlines and Dairy Farm

Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 1.33 times more return on investment than Dairy Farm. However, United Airlines is 1.33 times more volatile than Dairy Farm International. It trades about -0.01 of its potential returns per unit of risk. Dairy Farm International is currently generating about -0.18 per unit of risk. If you would invest  9,517  in United Airlines Holdings on September 27, 2024 and sell it today you would lose (133.00) from holding United Airlines Holdings or give up 1.4% of portfolio value over 90 days.

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

United Airlines Holdings  vs.  Dairy Farm International

United Airlines Holdings

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 25 (%) 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.

Dairy Farm International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dairy Farm International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Dairy Farm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Airlines and Dairy Farm

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

The idea behind United Airlines Holdings and Dairy Farm International 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.