Correlation Between Guangzhou Dongfang and Spring Airlines

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

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

Diversification Opportunities for Guangzhou Dongfang and Spring Airlines

0.32

Correlation Coefficient

Guangzhou Dongfang  Spring Airlines

Weak diversification

The 3 months correlation between Guangzhou and Spring is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Guangzhou Dongfang Hotel and Spring Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spring Airlines and Guangzhou Dongfang 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 Guangzhou Dongfang Hotel are associated (or correlated) with Spring Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spring Airlines has no effect on the direction of Guangzhou Dongfang i.e., Guangzhou Dongfang and Spring Airlines go up and down completely randomly.

Pair Corralation between Guangzhou Dongfang and Spring Airlines

Assuming the 90 days trading horizon Guangzhou Dongfang Hotel is expected to generate 1.68 times more return on investment than Spring Airlines. However, Guangzhou Dongfang is 1.68 times more volatile than Spring Airlines Co. It trades about 0.0 of its potential returns per unit of risk. Spring Airlines Co is currently generating about 0.0 per unit of risk. If you would invest  1,095  in Guangzhou Dongfang Hotel on October 15, 2024 and sell it today you would lose (209.00) from holding Guangzhou Dongfang Hotel or give up 19.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Guangzhou Dongfang Hotel  vs.  Spring Airlines Co

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Dongfang Hotel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Guangzhou Dongfang is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Spring Airlines

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Spring Airlines Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Spring Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guangzhou Dongfang and Spring Airlines

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

The idea behind Guangzhou Dongfang Hotel and Spring Airlines Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.