Correlation Between American Airlines and 3M
Can any of the company-specific risk be diversified away by investing in both American Airlines and 3M 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 American Airlines and 3M into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and 3M Company, you can compare the effects of market volatilities on American Airlines and 3M 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 American Airlines with a short position of 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and 3M.
Diversification Opportunities for American Airlines and 3M
-0.58 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between American and 3M is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company and American 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 American Airlines Group are associated (or correlated) with 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of American Airlines i.e., American Airlines and 3M go up and down completely randomly.
Pair Corralation between American Airlines and 3M
Considering the 90-day investment horizon American Airlines Group is expected to generate 1.38 times more return on investment than 3M. However, American Airlines is 1.38 times more volatile than 3M Company. It trades about 0.03 of its potential returns per unit of risk. 3M Company is currently generating about 0.02 per unit of risk. If you would invest 1,186 in American Airlines Group on January 19, 2024 and sell it today you would earn a total of 216.00 from holding American Airlines Group or generate 18.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. 3M Company
Performance |
| Timeline |
| American Airlines |
| 3M Company |
American Airlines and 3M Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and 3M
The main advantage of trading using opposite American Airlines and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
| 3M vs. MDU Resources Group | 3M vs. Valmont Industries | 3M vs. Griffon | 3M vs. Compass Diversified Holdings |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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