Correlation Between Air Lease and AerCap Holdings

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

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

Diversification Opportunities for Air Lease and AerCap Holdings

0.93

Correlation Coefficient

Air Lease  AerCap Holdings

Almost no diversification

The 3 months correlation between Air and AerCap is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and AerCap Holdings NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AerCap Holdings NV and Air Lease 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 Air Lease are associated (or correlated) with AerCap Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AerCap Holdings NV has no effect on the direction of Air Lease i.e., Air Lease and AerCap Holdings go up and down completely randomly.

Pair Corralation between Air Lease and AerCap Holdings

Allowing for the 90-day total investment horizon Air Lease is expected to generate 1.0 times more return on investment than AerCap Holdings. However, Air Lease is 1.0 times more volatile than AerCap Holdings NV. It trades about 0.09 of its potential returns per unit of risk. AerCap Holdings NV is currently generating about -0.12 per unit of risk. 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	Very Strong
Accuracy	95.45%
Values	Daily Returns

Air Lease  vs.  AerCap Holdings NV

Air Lease

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Air Lease disclosed solid returns over the last few months and may actually be approaching a breakup point.

AerCap Holdings NV

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AerCap Holdings NV are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, AerCap Holdings may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Air Lease and AerCap Holdings

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

The idea behind Air Lease and AerCap Holdings NV 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.