Correlation Between Xinjiang Tianrun and Air China

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

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

Diversification Opportunities for Xinjiang Tianrun and Air China

0.86

Correlation Coefficient

Xinjiang Tianrun  Air China

Very poor diversification

The 3 months correlation between Xinjiang and Air is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Xinjiang Tianrun Dairy and Air China Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China and Xinjiang Tianrun 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 Xinjiang Tianrun Dairy are associated (or correlated) with Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China has no effect on the direction of Xinjiang Tianrun i.e., Xinjiang Tianrun and Air China go up and down completely randomly.

Pair Corralation between Xinjiang Tianrun and Air China

Assuming the 90 days trading horizon Xinjiang Tianrun Dairy is expected to under-perform the Air China. In addition to that, Xinjiang Tianrun is 1.24 times more volatile than Air China Ltd. It trades about -0.04 of its total potential returns per unit of risk. Air China Ltd is currently generating about -0.03 per unit of volatility. If you would invest  1,069  in Air China Ltd on October 10, 2024 and sell it today you would lose (307.00) from holding Air China Ltd or give up 28.72% of portfolio value over 90 days.

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

Xinjiang Tianrun Dairy  vs.  Air China Ltd

Xinjiang Tianrun Dairy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Tianrun Dairy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Tianrun may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Air China

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Air China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xinjiang Tianrun and Air China

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

The idea behind Xinjiang Tianrun Dairy and Air China Ltd 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.