Correlation Between China International and Hainan Airlines

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

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

Diversification Opportunities for China International and Hainan Airlines

0.39

Correlation Coefficient

China International  Hainan Airlines

Weak diversification

The 3 months correlation between China and Hainan is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding China International Travel and Hainan Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Airlines and China International 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 International Travel are associated (or correlated) with Hainan Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Airlines has no effect on the direction of China International i.e., China International and Hainan Airlines go up and down completely randomly.

Pair Corralation between China International and Hainan Airlines

Assuming the 90 days trading horizon China International Travel is expected to under-perform the Hainan Airlines. But the stock apears to be less risky and, when comparing its historical volatility, China International Travel is 2.46 times less risky than Hainan Airlines. The stock trades about -0.13 of its potential returns per unit of risk. The Hainan Airlines Co is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Hainan Airlines Co on December 23, 2024 and sell it today you would lose (3.00) from holding Hainan Airlines Co or give up 9.68% of portfolio value over 90 days.

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

China International Travel  vs.  Hainan Airlines Co

China International

Risk-Adjusted Performance

Very Weak

Over the last 90 days China International Travel 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.

Hainan Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hainan 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 International and Hainan Airlines

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

The idea behind China International Travel and Hainan 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..