Correlation Between Air China and Zhejiang Longsheng

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

Diversification Opportunities for Air China and Zhejiang Longsheng

0.86

Correlation Coefficient

Air China  Zhejiang Longsheng

Very poor diversification

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

Pair Corralation between Air China and Zhejiang Longsheng

Assuming the 90 days trading horizon Air China Ltd is expected to under-perform the Zhejiang Longsheng. In addition to that, Air China is 1.32 times more volatile than Zhejiang Longsheng Group. It trades about -0.02 of its total potential returns per unit of risk. Zhejiang Longsheng Group is currently generating about 0.02 per unit of volatility. If you would invest  972.00  in Zhejiang Longsheng Group on September 23, 2024 and sell it today you would earn a total of  78.00  from holding Zhejiang Longsheng Group or generate 8.02% return on investment over 90 days.

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

Air China Ltd  vs.  Zhejiang Longsheng Group

Air China

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air China sustained solid returns over the last few months and may actually be approaching a breakup point.

Zhejiang Longsheng

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Zhejiang Longsheng Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Zhejiang Longsheng sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air China and Zhejiang Longsheng

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

The idea behind Air China Ltd and Zhejiang Longsheng Group 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.