Correlation Between Air China and Shaanxi Broadcast

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

Diversification Opportunities for Air China and Shaanxi Broadcast

0.12

Correlation Coefficient

Air China  Shaanxi Broadcast

Average diversification

The 3 months correlation between Air and Shaanxi is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Shaanxi Broadcast TV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shaanxi Broadcast 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 Shaanxi Broadcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shaanxi Broadcast has no effect on the direction of Air China i.e., Air China and Shaanxi Broadcast go up and down completely randomly.

Pair Corralation between Air China and Shaanxi Broadcast

Assuming the 90 days trading horizon Air China Ltd is expected to under-perform the Shaanxi Broadcast. But the stock apears to be less risky and, when comparing its historical volatility, Air China Ltd is 1.21 times less risky than Shaanxi Broadcast. The stock trades about -0.12 of its potential returns per unit of risk. The Shaanxi Broadcast TV is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  272.00  in Shaanxi Broadcast TV on December 24, 2024 and sell it today you would earn a total of  6.00  from holding Shaanxi Broadcast TV or generate 2.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Air China Ltd  vs.  Shaanxi Broadcast TV

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shaanxi Broadcast

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shaanxi Broadcast TV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shaanxi Broadcast 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 Shaanxi Broadcast

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

The idea behind Air China Ltd and Shaanxi Broadcast TV 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.