Correlation Between Dominos Pizza and Alaska Air

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Can any of the company-specific risk be diversified away by investing in both Dominos Pizza and Alaska Air 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 Dominos Pizza and Alaska Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dominos Pizza and Alaska Air Group, you can compare the effects of market volatilities on Dominos Pizza and Alaska Air 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 Dominos Pizza with a short position of Alaska Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dominos Pizza and Alaska Air.

Diversification Opportunities for Dominos Pizza and Alaska Air

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Dominos and Alaska is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dominos Pizza and Alaska Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alaska Air Group and Dominos Pizza 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 Dominos Pizza are associated (or correlated) with Alaska Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alaska Air Group has no effect on the direction of Dominos Pizza i.e., Dominos Pizza and Alaska Air go up and down completely randomly.

Pair Corralation between Dominos Pizza and Alaska Air

Considering the 90-day investment horizon Dominos Pizza is expected to generate 3.75 times less return on investment than Alaska Air. But when comparing it to its historical volatility, Dominos Pizza is 1.21 times less risky than Alaska Air. It trades about 0.09 of its potential returns per unit of risk. Alaska Air Group is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  3,956  in Alaska Air Group on January 22, 2024 and sell it today you would earn a total of  545.00  from holding Alaska Air Group or generate 13.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Dominos Pizza  vs.  Alaska Air Group

 Performance 
       Timeline  
Dominos Pizza 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Dominos Pizza may actually be approaching a critical reversion point that can send shares even higher in May 2024.
Alaska Air Group 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Alaska Air Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Alaska Air disclosed solid returns over the last few months and may actually be approaching a breakup point.

Dominos Pizza and Alaska Air Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dominos Pizza and Alaska Air

The main advantage of trading using opposite Dominos Pizza and Alaska Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominos Pizza position performs unexpectedly, Alaska Air 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 Alaska Air will offset losses from the drop in Alaska Air's long position.
The idea behind Dominos Pizza and Alaska Air Group 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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