Correlation Between China Airlines and ZongTai Real

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

By analyzing existing cross correlation between China Airlines and ZongTai Real Estate, you can compare the effects of market volatilities on China Airlines and ZongTai Real 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 ZongTai Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Airlines and ZongTai Real.

Diversification Opportunities for China Airlines and ZongTai Real

0.61

Correlation Coefficient

China Airlines  ZongTai Real

Poor diversification

The 3 months correlation between China and ZongTai is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding China Airlines and ZongTai Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZongTai Real Estate 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 ZongTai Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZongTai Real Estate has no effect on the direction of China Airlines i.e., China Airlines and ZongTai Real go up and down completely randomly.

Pair Corralation between China Airlines and ZongTai Real

Assuming the 90 days trading horizon China Airlines is expected to generate 1.23 times more return on investment than ZongTai Real. However, China Airlines is 1.23 times more volatile than ZongTai Real Estate. It trades about 0.18 of its potential returns per unit of risk. ZongTai Real Estate is currently generating about -0.2 per unit of risk. If you would invest  2,415  in China Airlines on September 22, 2024 and sell it today you would earn a total of  175.00  from holding China Airlines or generate 7.25% return on investment over 90 days.

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

China Airlines  vs.  ZongTai Real Estate

China Airlines

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 15 (%) 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.

ZongTai Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ZongTai Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, ZongTai Real 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 ZongTai Real

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

The idea behind China Airlines and ZongTai Real Estate 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.