Correlation Between Spring Airlines and Guangzhou Dongfang

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

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

Diversification Opportunities for Spring Airlines and Guangzhou Dongfang

0.62

Correlation Coefficient

Spring Airlines  Guangzhou Dongfang

Poor diversification

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

Pair Corralation between Spring Airlines and Guangzhou Dongfang

Assuming the 90 days trading horizon Spring Airlines Co is expected to generate 0.5 times more return on investment than Guangzhou Dongfang. However, Spring Airlines Co is 1.99 times less risky than Guangzhou Dongfang. It trades about 0.03 of its potential returns per unit of risk. Guangzhou Dongfang Hotel is currently generating about -0.01 per unit of risk. If you would invest  5,678  in Spring Airlines Co on September 27, 2024 and sell it today you would earn a total of  41.00  from holding Spring Airlines Co or generate 0.72% return on investment over 90 days.

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

Spring Airlines Co  vs.  Guangzhou Dongfang Hotel

Spring Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

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

Guangzhou Dongfang Hotel

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Spring Airlines and Guangzhou Dongfang

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

The idea behind Spring Airlines Co and Guangzhou Dongfang Hotel 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.