Correlation Between Air China and Westone Information

Can any of the company-specific risk be diversified away by investing in both Air China and Westone Information 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 Westone Information 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 Westone Information Industry, you can compare the effects of market volatilities on Air China and Westone Information 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 Westone Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Westone Information.

Diversification Opportunities for Air China and Westone Information

-0.27

Correlation Coefficient

Air China  Westone Information

Very good diversification

The 3 months correlation between Air and Westone is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Westone Information Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westone Information 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 Westone Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westone Information has no effect on the direction of Air China i.e., Air China and Westone Information go up and down completely randomly.

Pair Corralation between Air China and Westone Information

Assuming the 90 days trading horizon Air China Ltd is expected to under-perform the Westone Information. But the stock apears to be less risky and, when comparing its historical volatility, Air China Ltd is 1.22 times less risky than Westone Information. The stock trades about -0.04 of its potential returns per unit of risk. The Westone Information Industry is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,711  in Westone Information Industry on December 26, 2024 and sell it today you would lose (56.00) from holding Westone Information Industry or give up 3.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

Air China Ltd  vs.  Westone Information Industry

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 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.

Westone Information

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Air China and Westone Information

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

The idea behind Air China Ltd and Westone Information Industry 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.