Correlation Between Toro and Air Lease

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

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

Diversification Opportunities for Toro and Air Lease

-0.8

Correlation Coefficient

Toro  Air Lease

Pay attention - limited upside

The 3 months correlation between Toro and Air is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease and Toro 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 Toro Co are associated (or correlated) with Air Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of Toro i.e., Toro and Air Lease go up and down completely randomly.

Pair Corralation between Toro and Air Lease

Considering the 90-day investment horizon Toro Co is expected to generate 0.83 times more return on investment than Air Lease. However, Toro Co is 1.2 times less risky than Air Lease. It trades about -0.05 of its potential returns per unit of risk. Air Lease is currently generating about -0.06 per unit of risk. If you would invest  8,877  in Toro Co on February 1, 2024 and sell it today you would lose (118.00) from holding Toro Co or give up 1.33% of portfolio value over 90 days.

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

Toro Co  vs.  Air Lease

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Air Lease

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Toro and Air Lease

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

The idea behind Toro Co and Air Lease 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.