Correlation Between Xiandai Investment and Eastern Air

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

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

Diversification Opportunities for Xiandai Investment and Eastern Air

0.29

Correlation Coefficient

Xiandai Investment  Eastern Air

Modest diversification

The 3 months correlation between Xiandai and Eastern is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Xiandai Investment Co and Eastern Air Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Air Logistics and Xiandai Investment 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 Xiandai Investment Co are associated (or correlated) with Eastern Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Air Logistics has no effect on the direction of Xiandai Investment i.e., Xiandai Investment and Eastern Air go up and down completely randomly.

Pair Corralation between Xiandai Investment and Eastern Air

Assuming the 90 days trading horizon Xiandai Investment Co is expected to generate 0.6 times more return on investment than Eastern Air. However, Xiandai Investment Co is 1.67 times less risky than Eastern Air. It trades about -0.11 of its potential returns per unit of risk. Eastern Air Logistics is currently generating about -0.08 per unit of risk. If you would invest  463.00  in Xiandai Investment Co on December 2, 2024 and sell it today you would lose (44.00) from holding Xiandai Investment Co or give up 9.5% of portfolio value over 90 days.

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

Xiandai Investment Co  vs.  Eastern Air Logistics

Xiandai Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xiandai Investment Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Eastern Air Logistics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Air Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Xiandai Investment and Eastern Air

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

The idea behind Xiandai Investment Co and Eastern Air Logistics 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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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.