Correlation Between Air Busan and Jin Air

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

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

Diversification Opportunities for Air Busan and Jin Air

0.62

Correlation Coefficient

Air Busan  Jin Air

Poor diversification

The 3 months correlation between Air and Jin is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Air Busan Co and Jin Air Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jin Air and Air Busan 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 Busan Co are associated (or correlated) with Jin Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jin Air has no effect on the direction of Air Busan i.e., Air Busan and Jin Air go up and down completely randomly.

Pair Corralation between Air Busan and Jin Air

Assuming the 90 days trading horizon Air Busan Co is expected to under-perform the Jin Air. But the stock apears to be less risky and, when comparing its historical volatility, Air Busan Co is 1.17 times less risky than Jin Air. The stock trades about -0.15 of its potential returns per unit of risk. The Jin Air Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  962,000  in Jin Air Co on December 30, 2024 and sell it today you would lose (19,000) from holding Jin Air Co or give up 1.98% of portfolio value over 90 days.

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

Air Busan Co  vs.  Jin Air Co

Air Busan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Busan 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.

Jin Air

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jin Air Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Jin Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Air Busan and Jin Air

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

The idea behind Air Busan Co and Jin Air 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.