Correlation Between Union Pacific and United Airlines

Can any of the company-specific risk be diversified away by investing in both Union Pacific and United Airlines 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 Union Pacific and United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Union Pacific and United Airlines

0.14

Correlation Coefficient

Union Pacific  United Airlines

Average diversification

The 3 months correlation between Union and United is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Union Pacific and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings and Union Pacific 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 Union Pacific are associated (or correlated) with United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Union Pacific i.e., Union Pacific and United Airlines go up and down completely randomly.

Pair Corralation between Union Pacific and United Airlines

Considering the 90-day investment horizon Union Pacific is expected to under-perform the United Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Union Pacific is 5.81 times less risky than United Airlines. The stock trades about -0.4 of its potential returns per unit of risk. The United Airlines Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  4,598  in United Airlines Holdings on January 20, 2024 and sell it today you would earn a total of  544.00  from holding United Airlines Holdings or generate 11.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Union Pacific  vs.  United Airlines Holdings

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

United Airlines Holdings

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Union Pacific and United Airlines

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

The idea behind Union Pacific and United Airlines Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.