Correlation Between China Merchants and Spring Airlines

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

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

Diversification Opportunities for China Merchants and Spring Airlines

0.77

Correlation Coefficient

China Merchants  Spring Airlines

Poor diversification

The 3 months correlation between China and Spring is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Shekou and Spring Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spring Airlines and China Merchants 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 China Merchants Shekou 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 China Merchants i.e., China Merchants and Spring Airlines go up and down completely randomly.

Pair Corralation between China Merchants and Spring Airlines

Assuming the 90 days trading horizon China Merchants Shekou is expected to generate 1.47 times more return on investment than Spring Airlines. However, China Merchants is 1.47 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 -0.01 per unit of risk. If you would invest  1,199  in China Merchants Shekou on September 20, 2024 and sell it today you would lose (134.00) from holding China Merchants Shekou or give up 11.18% of portfolio value over 90 days.

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

China Merchants Shekou  vs.  Spring Airlines Co

China Merchants Shekou

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Merchants Shekou are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Merchants sustained solid returns over the last few months and may actually be approaching a breakup point.

Spring Airlines

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spring Airlines Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Spring Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Merchants and Spring Airlines

The main advantage of trading using opposite China Merchants and Spring Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants 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 China Merchants Shekou 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.