Correlation Between Hainan Airlines and China Citic

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

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

Diversification Opportunities for Hainan Airlines and China Citic

0.54

Correlation Coefficient

Hainan Airlines  China Citic

Very weak diversification

The 3 months correlation between Hainan and China is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Airlines Co and China Citic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Citic Bank and Hainan 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 Hainan Airlines Co are associated (or correlated) with China Citic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Citic Bank has no effect on the direction of Hainan Airlines i.e., Hainan Airlines and China Citic go up and down completely randomly.

Pair Corralation between Hainan Airlines and China Citic

Assuming the 90 days trading horizon Hainan Airlines Co is expected to generate 1.98 times more return on investment than China Citic. However, Hainan Airlines is 1.98 times more volatile than China Citic Bank. It trades about 0.16 of its potential returns per unit of risk. China Citic Bank is currently generating about 0.04 per unit of risk. If you would invest  108.00  in Hainan Airlines Co on September 21, 2024 and sell it today you would earn a total of  76.00  from holding Hainan Airlines Co or generate 70.37% return on investment over 90 days.

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

Hainan Airlines Co  vs.  China Citic Bank

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.

China Citic Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Citic Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Citic sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hainan Airlines and China Citic

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

The idea behind Hainan Airlines Co and China Citic Bank 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .