Correlation Between China Everbright and Spring Airlines

Can any of the company-specific risk be diversified away by investing in both China Everbright 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 Everbright 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 Everbright Bank and Spring Airlines Co, you can compare the effects of market volatilities on China Everbright 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 Everbright with a short position of Spring Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Everbright and Spring Airlines.

Diversification Opportunities for China Everbright and Spring Airlines

0.32

Correlation Coefficient

China Everbright  Spring Airlines

Weak diversification

The 3 months correlation between China and Spring is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding China Everbright Bank 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 Everbright 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 Everbright Bank 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 Everbright i.e., China Everbright and Spring Airlines go up and down completely randomly.

Pair Corralation between China Everbright and Spring Airlines

Assuming the 90 days trading horizon China Everbright Bank is expected to generate 0.96 times more return on investment than Spring Airlines. However, China Everbright Bank is 1.04 times less risky than Spring Airlines. It trades about 0.09 of its potential returns per unit of risk. Spring Airlines Co is currently generating about -0.01 per unit of risk. If you would invest  353.00  in China Everbright Bank on October 6, 2024 and sell it today you would earn a total of  18.00  from holding China Everbright Bank or generate 5.1% return on investment over 90 days.

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

China Everbright Bank  vs.  Spring Airlines Co

China Everbright Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, China Everbright is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Spring Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spring Airlines Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with China Everbright and Spring Airlines

The main advantage of trading using opposite China Everbright and Spring Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Everbright 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 Everbright Bank 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.