Correlation Between Block and Air Lease
Can any of the company-specific risk be diversified away by investing in both Block and Air Lease 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 Block and Air Lease into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Block Inc and Air Lease, you can compare the effects of market volatilities on Block and Air Lease 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 Block with a short position of Air Lease. Check out your portfolio center. Please also check ongoing floating volatility patterns of Block and Air Lease.
Diversification Opportunities for Block and Air Lease
Poor diversification
The 3 months correlation between Block and Air is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease and Block 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 Block Inc are associated (or correlated) with Air Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of Block i.e., Block and Air Lease go up and down completely randomly.
Pair Corralation between Block and Air Lease
Allowing for the 90-day total investment horizon Block Inc is expected to under-perform the Air Lease. In addition to that, Block is 2.47 times more volatile than Air Lease. It trades about -0.2 of its total potential returns per unit of risk. Air Lease is currently generating about 0.09 per unit of volatility. If you would invest 5,031 in Air Lease on January 26, 2024 and sell it today you would earn a total of 109.00 from holding Air Lease or generate 2.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Block Inc vs. Air Lease
Performance |
| Timeline |
| Block Inc |
| Air Lease |
Block and Air Lease Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Block and Air Lease
The main advantage of trading using opposite Block and Air Lease positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Block position performs unexpectedly, Air Lease 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 Air Lease will offset losses from the drop in Air Lease's long position.The idea behind Block Inc and Air Lease 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.| Air Lease vs. Ryder System | Air Lease vs. The Aarons | Air Lease vs. Alta Equipment Group | Air Lease vs. GATX Corporation |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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