Correlation Between China Railway and Spring Airlines

Can any of the company-specific risk be diversified away by investing in both China Railway and Spring Airlines 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 China Railway and Spring Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Railway Group and Spring Airlines Co, you can compare the effects of market volatilities on China Railway and Spring Airlines 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 China Railway with a short position of Spring Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Spring Airlines.

Diversification Opportunities for China Railway and Spring Airlines

0.8

Correlation Coefficient

China Railway  Spring Airlines

Very poor diversification

The 3 months correlation between China and Spring is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Group and Spring Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spring Airlines and China Railway 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 China Railway Group are associated (or correlated) with Spring Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spring Airlines has no effect on the direction of China Railway i.e., China Railway and Spring Airlines go up and down completely randomly.

Pair Corralation between China Railway and Spring Airlines

Assuming the 90 days trading horizon China Railway Group is expected to generate 1.23 times more return on investment than Spring Airlines. However, China Railway is 1.23 times more volatile than Spring Airlines Co. It trades about 0.14 of its potential returns per unit of risk. Spring Airlines Co is currently generating about 0.08 per unit of risk. If you would invest  526.00  in China Railway Group on September 4, 2024 and sell it today you would earn a total of  125.00  from holding China Railway Group or generate 23.76% return on investment over 90 days.

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

China Railway Group  vs.  Spring Airlines Co

China Railway Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Railway Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Railway sustained solid returns over the last few months and may actually be approaching a breakup point.

Spring Airlines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spring Airlines Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Spring Airlines may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with China Railway and Spring Airlines

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

The idea behind China Railway Group and Spring Airlines Co 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.