Correlation Between Air China and Nomad Foods

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

By analyzing existing cross correlation between Air China Limited and Nomad Foods, you can compare the effects of market volatilities on Air China and Nomad Foods 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 Air China with a short position of Nomad Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Nomad Foods.

Diversification Opportunities for Air China and Nomad Foods

0.0

Correlation Coefficient

Air China  Nomad Foods

Pay attention - limited upside

The 3 months correlation between Air and Nomad is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Nomad Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomad Foods and Air China 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 Air China Limited are associated (or correlated) with Nomad Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomad Foods has no effect on the direction of Air China i.e., Air China and Nomad Foods go up and down completely randomly.

Pair Corralation between Air China and Nomad Foods

Assuming the 90 days horizon Air China is expected to generate 7.33 times less return on investment than Nomad Foods. In addition to that, Air China is 1.69 times more volatile than Nomad Foods. It trades about 0.01 of its total potential returns per unit of risk. Nomad Foods is currently generating about 0.11 per unit of volatility. If you would invest  1,585  in Nomad Foods on December 19, 2024 and sell it today you would earn a total of  205.00  from holding Nomad Foods or generate 12.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Air China Limited  vs.  Nomad Foods

Air China Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air China Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Air China is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Nomad Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nomad Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nomad Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air China and Nomad Foods

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

The idea behind Air China Limited and Nomad Foods 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.