Correlation Between AIR CHINA and COSTCO WHOLESALE

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

By analyzing existing cross correlation between AIR CHINA LTD and COSTCO WHOLESALE CDR, you can compare the effects of market volatilities on AIR CHINA and COSTCO WHOLESALE 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 COSTCO WHOLESALE. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIR CHINA and COSTCO WHOLESALE.

Diversification Opportunities for AIR CHINA and COSTCO WHOLESALE

0.78

Correlation Coefficient

AIR CHINA  COSTCO WHOLESALE

Poor diversification

The 3 months correlation between AIR and COSTCO is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding AIR CHINA LTD and COSTCO WHOLESALE CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COSTCO WHOLESALE CDR 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 LTD are associated (or correlated) with COSTCO WHOLESALE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COSTCO WHOLESALE CDR has no effect on the direction of AIR CHINA i.e., AIR CHINA and COSTCO WHOLESALE go up and down completely randomly.

Pair Corralation between AIR CHINA and COSTCO WHOLESALE

Assuming the 90 days trading horizon AIR CHINA LTD is expected to under-perform the COSTCO WHOLESALE. In addition to that, AIR CHINA is 1.82 times more volatile than COSTCO WHOLESALE CDR. It trades about -0.01 of its total potential returns per unit of risk. COSTCO WHOLESALE CDR is currently generating about 0.09 per unit of volatility. If you would invest  1,575  in COSTCO WHOLESALE CDR on October 5, 2024 and sell it today you would earn a total of  1,285  from holding COSTCO WHOLESALE CDR or generate 81.59% return on investment over 90 days.

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

AIR CHINA LTD  vs.  COSTCO WHOLESALE CDR

AIR CHINA LTD

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days AIR CHINA LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, AIR CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

COSTCO WHOLESALE CDR

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days COSTCO WHOLESALE CDR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, COSTCO WHOLESALE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with AIR CHINA and COSTCO WHOLESALE

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

The idea behind AIR CHINA LTD and COSTCO WHOLESALE CDR 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.