Correlation Between Data Communications and Air Canada

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

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

Diversification Opportunities for Data Communications and Air Canada

-0.25

Correlation Coefficient

Data Communications  Air Canada

Very good diversification

The 3 months correlation between Data and Air is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Data Communications Management and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada and Data Communications 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 Data Communications Management are associated (or correlated) with Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Data Communications i.e., Data Communications and Air Canada go up and down completely randomly.

Pair Corralation between Data Communications and Air Canada

Assuming the 90 days trading horizon Data Communications Management is expected to generate 1.71 times more return on investment than Air Canada. However, Data Communications is 1.71 times more volatile than Air Canada. It trades about 0.12 of its potential returns per unit of risk. Air Canada is currently generating about 0.1 per unit of risk. If you would invest  310.00  in Data Communications Management on January 23, 2024 and sell it today you would earn a total of  20.00  from holding Data Communications Management or generate 6.45% return on investment over 90 days.

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

Data Communications Management  vs.  Air Canada

Data Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Data Communications Management are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Data Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Air Canada

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Air Canada may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Data Communications and Air Canada

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

The idea behind Data Communications Management and Air Canada 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.