Correlation Between Air Lease and Kaiser Aluminum

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

By analyzing existing cross correlation between Air Lease and Kaiser Aluminum, you can compare the effects of market volatilities on Air Lease and Kaiser Aluminum 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 Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Lease and Kaiser Aluminum.

Diversification Opportunities for Air Lease and Kaiser Aluminum

0.91

Correlation Coefficient

Air Lease  Kaiser Aluminum

Almost no diversification

The 3 months correlation between Air and Kaiser is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Air Lease i.e., Air Lease and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Air Lease and Kaiser Aluminum

Allowing for the 90-day total investment horizon Air Lease is expected to generate 2.25 times less return on investment than Kaiser Aluminum. But when comparing it to its historical volatility, Air Lease is 1.42 times less risky than Kaiser Aluminum. It trades about 0.17 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  8,208  in Kaiser Aluminum on January 20, 2024 and sell it today you would earn a total of  809.00  from holding Kaiser Aluminum or generate 9.86% 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.  Kaiser Aluminum

Air Lease

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 14 (%) 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.

Kaiser Aluminum

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Lease and Kaiser Aluminum

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

The idea behind Air Lease and Kaiser Aluminum 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.