Correlation Between American Airlines and China Eastern

Can any of the company-specific risk be diversified away by investing in both American Airlines and China Eastern 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 Eastern 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 Eastern Airlines, you can compare the effects of market volatilities on American Airlines and China Eastern 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 Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and China Eastern.

Diversification Opportunities for American Airlines and China Eastern

-0.59

Correlation Coefficient

American Airlines  China Eastern

Excellent diversification

The 3 months correlation between American and China is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of American Airlines i.e., American Airlines and China Eastern go up and down completely randomly.

Pair Corralation between American Airlines and China Eastern

If you would invest  1,716  in American Airlines Group on October 10, 2024 and sell it today you would earn a total of  44.00  from holding American Airlines Group or generate 2.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	4.76%
Values	Daily Returns

American Airlines Group  vs.  China Eastern Airlines

American Airlines

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

China Eastern Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Eastern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, China Eastern is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Airlines and China Eastern

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

The idea behind American Airlines Group and China Eastern Airlines 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.