Correlation Between Spirit Airlines and Avis Budget

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

Diversification Opportunities for Spirit Airlines and Avis Budget

  Correlation Coefficient

Good diversification

The 3 months correlation between Spirit and Avis Budget is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Spirit Airlines and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group and Spirit Airlines 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 Spirit Airlines are associated (or correlated) with Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of Spirit Airlines i.e., Spirit Airlines and Avis Budget go up and down completely randomly.

Pair Corralation between Spirit Airlines and Avis Budget

Given the investment horizon of 90 days Spirit Airlines is expected to generate 0.83 times more return on investment than Avis Budget. However, Spirit Airlines is 1.21 times less risky than Avis Budget. It trades about -0.15 of its potential returns per unit of risk. Avis Budget Group is currently generating about -0.28 per unit of risk. If you would invest  1,841  in Spirit Airlines on December 27, 2022 and sell it today you would lose (169.00)  from holding Spirit Airlines or give up 9.18% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
ValuesDaily Returns

Spirit Airlines  vs.  Avis Budget Group

 Performance (%) 
Spirit Airlines 

Spirit Performance

0 of 100

Over the last 90 days Spirit Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Avis Budget Group 

Avis Budget Performance

5 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Avis Budget reported solid returns over the last few months and may actually be approaching a breakup point.

Spirit Airlines and Avis Budget Volatility Contrast

   Predicted Return Density   

Pair Trading with Spirit Airlines and Avis Budget

The main advantage of trading using opposite Spirit Airlines and Avis Budget positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirit Airlines position performs unexpectedly, Avis Budget 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 Avis Budget will offset losses from the drop in Avis Budget's long position.
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The idea behind Spirit Airlines and Avis Budget 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.
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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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