Correlation Between Air China and AIR CHINA

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

Diversification Opportunities for Air China and AIR CHINA

0.99

Correlation Coefficient

Air China  AIR CHINA

No risk reduction

The 3 months correlation between Air and AIR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and AIR CHINA LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR CHINA LTD 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 AIR CHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR CHINA LTD has no effect on the direction of Air China i.e., Air China and AIR CHINA go up and down completely randomly.

Pair Corralation between Air China and AIR CHINA

Assuming the 90 days horizon Air China is expected to generate 1.09 times less return on investment than AIR CHINA. In addition to that, Air China is 1.04 times more volatile than AIR CHINA LTD. It trades about 0.14 of its total potential returns per unit of risk. AIR CHINA LTD is currently generating about 0.16 per unit of volatility. If you would invest  1,100  in AIR CHINA LTD on September 22, 2024 and sell it today you would earn a total of  130.00  from holding AIR CHINA LTD or generate 11.82% return on investment over 90 days.

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

Air China Limited  vs.  AIR CHINA LTD

Air China Limited

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air China reported solid returns over the last few months and may actually be approaching a breakup point.

AIR CHINA LTD

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AIR CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air China and AIR CHINA

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

The idea behind Air China Limited and AIR CHINA LTD 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.