Correlation Between Air China and Shan Dong

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

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

Diversification Opportunities for Air China and Shan Dong

0.53

Correlation Coefficient

Air China  Shan Dong

Very weak diversification

The 3 months correlation between Air and Shan is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Shan Dong Dong E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shan Dong Dong and Air China 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 Air China Ltd are associated (or correlated) with Shan Dong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shan Dong Dong has no effect on the direction of Air China i.e., Air China and Shan Dong go up and down completely randomly.

Pair Corralation between Air China and Shan Dong

Assuming the 90 days trading horizon Air China Ltd is expected to under-perform the Shan Dong. In addition to that, Air China is 1.32 times more volatile than Shan Dong Dong E. It trades about -0.1 of its total potential returns per unit of risk. Shan Dong Dong E is currently generating about -0.07 per unit of volatility. If you would invest  6,294  in Shan Dong Dong E on December 23, 2024 and sell it today you would lose (398.00) from holding Shan Dong Dong E or give up 6.32% of portfolio value over 90 days.

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

Air China Ltd  vs.  Shan Dong Dong E

Air China

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air China Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shan Dong Dong

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shan Dong Dong E has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Air China and Shan Dong

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

The idea behind Air China Ltd and Shan Dong Dong E 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.