Correlation Between Hainan Airlines and Spring Airlines

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

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

Diversification Opportunities for Hainan Airlines and Spring Airlines

0.38

Correlation Coefficient

Hainan Airlines  Spring Airlines

Weak diversification

The 3 months correlation between Hainan and Spring is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Airlines Co and Spring Airlines Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spring Airlines and Hainan Airlines 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 Hainan Airlines Co 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 Hainan Airlines i.e., Hainan Airlines and Spring Airlines go up and down completely randomly.

Pair Corralation between Hainan Airlines and Spring Airlines

Assuming the 90 days trading horizon Hainan Airlines Co is expected to under-perform the Spring Airlines. In addition to that, Hainan Airlines is 2.32 times more volatile than Spring Airlines Co. It trades about -0.03 of its total potential returns per unit of risk. Spring Airlines Co is currently generating about -0.02 per unit of volatility. If you would invest  5,703  in Spring Airlines Co on October 7, 2024 and sell it today you would lose (93.00) from holding Spring Airlines Co or give up 1.63% of portfolio value over 90 days.

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

Hainan Airlines Co  vs.  Spring Airlines Co

Hainan Airlines

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Airlines Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Hainan Airlines and Spring Airlines

The main advantage of trading using opposite Hainan Airlines and Spring Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hainan Airlines 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 Hainan Airlines Co 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.