Correlation Between Sun Sea and China Airlines

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

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

Diversification Opportunities for Sun Sea and China Airlines

-0.01

Correlation Coefficient

Sun Sea  China Airlines

Good diversification

The 3 months correlation between Sun and China is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sun Sea Construction and China Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Airlines and Sun Sea 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 Sun Sea Construction are associated (or correlated) with China Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Airlines has no effect on the direction of Sun Sea i.e., Sun Sea and China Airlines go up and down completely randomly.

Pair Corralation between Sun Sea and China Airlines

Assuming the 90 days trading horizon Sun Sea Construction is expected to generate 0.86 times more return on investment than China Airlines. However, Sun Sea Construction is 1.16 times less risky than China Airlines. It trades about 0.16 of its potential returns per unit of risk. China Airlines is currently generating about -0.12 per unit of risk. If you would invest  1,830  in Sun Sea Construction on October 4, 2024 and sell it today you would earn a total of  80.00  from holding Sun Sea Construction or generate 4.37% return on investment over 90 days.

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

Sun Sea Construction  vs.  China Airlines

Sun Sea Construction

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Sun Sea and China Airlines

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

The idea behind Sun Sea Construction and China Airlines 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..