Correlation Between Air China and Shenzhen Glory

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

Diversification Opportunities for Air China and Shenzhen Glory

0.77

Correlation Coefficient

Air China  Shenzhen Glory

Poor diversification

The 3 months correlation between Air and Shenzhen is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Shenzhen Glory Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Glory Medical 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 Shenzhen Glory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Glory Medical has no effect on the direction of Air China i.e., Air China and Shenzhen Glory go up and down completely randomly.

Pair Corralation between Air China and Shenzhen Glory

Assuming the 90 days trading horizon Air China Ltd is expected to generate 0.52 times more return on investment than Shenzhen Glory. However, Air China Ltd is 1.94 times less risky than Shenzhen Glory. It trades about 0.02 of its potential returns per unit of risk. Shenzhen Glory Medical is currently generating about -0.02 per unit of risk. If you would invest  735.00  in Air China Ltd on October 9, 2024 and sell it today you would earn a total of  27.00  from holding Air China Ltd or generate 3.67% return on investment over 90 days.

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

Air China Ltd  vs.  Shenzhen Glory Medical

Air China

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air China may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Shenzhen Glory Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shenzhen Glory Medical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen Glory 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 Shenzhen Glory

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

The idea behind Air China Ltd and Shenzhen Glory Medical 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.