Correlation Between Strait Innovation and Hainan Airlines

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

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

Diversification Opportunities for Strait Innovation and Hainan Airlines

0.88

Correlation Coefficient

Strait Innovation  Hainan Airlines

Very poor diversification

The 3 months correlation between Strait and Hainan is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Strait Innovation Internet and Hainan Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Airlines and Strait Innovation 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 Strait Innovation Internet are associated (or correlated) with Hainan Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Airlines has no effect on the direction of Strait Innovation i.e., Strait Innovation and Hainan Airlines go up and down completely randomly.

Pair Corralation between Strait Innovation and Hainan Airlines

Assuming the 90 days trading horizon Strait Innovation Internet is expected to generate 1.05 times more return on investment than Hainan Airlines. However, Strait Innovation is 1.05 times more volatile than Hainan Airlines Co. It trades about 0.29 of its potential returns per unit of risk. Hainan Airlines Co is currently generating about 0.23 per unit of risk. If you would invest  148.00  in Strait Innovation Internet on September 20, 2024 and sell it today you would earn a total of  173.00  from holding Strait Innovation Internet or generate 116.89% return on investment over 90 days.

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

Strait Innovation Internet  vs.  Hainan Airlines Co

Strait Innovation

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Strait Innovation Internet are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Strait Innovation sustained solid returns over the last few months and may actually be approaching a breakup point.

Hainan Airlines

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Airlines Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strait Innovation and Hainan Airlines

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

The idea behind Strait Innovation Internet and Hainan 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.