Correlation Between Air China and Hangzhou Pinming

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

Diversification Opportunities for Air China and Hangzhou Pinming

0.56

Correlation Coefficient

Air China  Hangzhou Pinming

Very weak diversification

The 3 months correlation between Air and Hangzhou is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Hangzhou Pinming Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hangzhou Pinming Software 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 Hangzhou Pinming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hangzhou Pinming Software has no effect on the direction of Air China i.e., Air China and Hangzhou Pinming go up and down completely randomly.

Pair Corralation between Air China and Hangzhou Pinming

Assuming the 90 days trading horizon Air China Ltd is expected to generate 0.96 times more return on investment than Hangzhou Pinming. However, Air China Ltd is 1.04 times less risky than Hangzhou Pinming. It trades about 0.1 of its potential returns per unit of risk. Hangzhou Pinming Software is currently generating about 0.03 per unit of risk. If you would invest  772.00  in Air China Ltd on September 19, 2024 and sell it today you would earn a total of  36.00  from holding Air China Ltd or generate 4.66% return on investment over 90 days.

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

Air China Ltd  vs.  Hangzhou Pinming Software

Air China

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 14 (%) 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.

Hangzhou Pinming Software

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hangzhou Pinming Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hangzhou Pinming may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Air China and Hangzhou Pinming

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

The idea behind Air China Ltd and Hangzhou Pinming Software 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.