Correlation Between China Airlines and Chinese Maritime

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

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

Diversification Opportunities for China Airlines and Chinese Maritime

-0.2

Correlation Coefficient

China Airlines  Chinese Maritime

Good diversification

The 3 months correlation between China and Chinese is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding China Airlines and Chinese Maritime Transport in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chinese Maritime Tra and China Airlines 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 Airlines are associated (or correlated) with Chinese Maritime. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chinese Maritime Tra has no effect on the direction of China Airlines i.e., China Airlines and Chinese Maritime go up and down completely randomly.

Pair Corralation between China Airlines and Chinese Maritime

Assuming the 90 days trading horizon China Airlines is expected to generate 1.6 times more return on investment than Chinese Maritime. However, China Airlines is 1.6 times more volatile than Chinese Maritime Transport. It trades about 0.22 of its potential returns per unit of risk. Chinese Maritime Transport is currently generating about -0.39 per unit of risk. If you would invest  2,385  in China Airlines on September 16, 2024 and sell it today you would earn a total of  215.00  from holding China Airlines or generate 9.01% return on investment over 90 days.

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

China Airlines  vs.  Chinese Maritime Transport

China Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Chinese Maritime Tra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chinese Maritime Transport has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Chinese Maritime is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Airlines and Chinese Maritime

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

The idea behind China Airlines and Chinese Maritime Transport 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.