Correlation Between American Airlines and CHINA SOUTHN

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

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

Diversification Opportunities for American Airlines and CHINA SOUTHN

0.89

Correlation Coefficient

American Airlines  CHINA SOUTHN

Very poor diversification

The 3 months correlation between American and CHINA is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR and American 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 American Airlines Group are associated (or correlated) with CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of American Airlines i.e., American Airlines and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between American Airlines and CHINA SOUTHN

Assuming the 90 days horizon American Airlines Group is expected to generate 1.03 times more return on investment than CHINA SOUTHN. However, American Airlines is 1.03 times more volatile than CHINA SOUTHN AIR H . It trades about 0.13 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about -0.12 per unit of risk. If you would invest  1,634  in American Airlines Group on October 11, 2024 and sell it today you would earn a total of  91.00  from holding American Airlines Group or generate 5.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.44%
Values	Daily Returns

American Airlines Group  vs.  CHINA SOUTHN AIR H

American Airlines

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, American Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

CHINA SOUTHN AIR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Airlines and CHINA SOUTHN

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

The idea behind American Airlines Group and CHINA SOUTHN AIR H 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.