Correlation Between Air Asia and Connection Technology

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

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

Diversification Opportunities for Air Asia and Connection Technology

-0.48

Correlation Coefficient

Air Asia  Connection Technology

Very good diversification

The 3 months correlation between Air and Connection is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Air Asia Co and Connection Technology Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connection Technology and Air Asia 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 Air Asia Co are associated (or correlated) with Connection Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connection Technology has no effect on the direction of Air Asia i.e., Air Asia and Connection Technology go up and down completely randomly.

Pair Corralation between Air Asia and Connection Technology

Assuming the 90 days trading horizon Air Asia Co is expected to generate 1.96 times more return on investment than Connection Technology. However, Air Asia is 1.96 times more volatile than Connection Technology Systems. It trades about 0.16 of its potential returns per unit of risk. Connection Technology Systems is currently generating about -0.15 per unit of risk. If you would invest  3,095  in Air Asia Co on October 26, 2024 and sell it today you would earn a total of  710.00  from holding Air Asia Co or generate 22.94% return on investment over 90 days.

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

Air Asia Co  vs.  Connection Technology Systems

Air Asia

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Asia Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Air Asia showed solid returns over the last few months and may actually be approaching a breakup point.

Connection Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Connection Technology Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Air Asia and Connection Technology

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

The idea behind Air Asia Co and Connection Technology Systems 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.