Correlation Between AIR CHINA and MGIC INVESTMENT

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

Diversification Opportunities for AIR CHINA and MGIC INVESTMENT

0.16

Correlation Coefficient

AIR CHINA  MGIC INVESTMENT

Average diversification

The 3 months correlation between AIR and MGIC is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding AIR CHINA LTD and MGIC INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC INVESTMENT 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 MGIC INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGIC INVESTMENT has no effect on the direction of AIR CHINA i.e., AIR CHINA and MGIC INVESTMENT go up and down completely randomly.

Pair Corralation between AIR CHINA and MGIC INVESTMENT

Assuming the 90 days trading horizon AIR CHINA LTD is expected to generate 2.33 times more return on investment than MGIC INVESTMENT. However, AIR CHINA is 2.33 times more volatile than MGIC INVESTMENT. It trades about 0.11 of its potential returns per unit of risk. MGIC INVESTMENT is currently generating about -0.01 per unit of risk. If you would invest  1,010  in AIR CHINA LTD on October 10, 2024 and sell it today you would earn a total of  110.00  from holding AIR CHINA LTD or generate 10.89% return on investment over 90 days.

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

AIR CHINA LTD  vs.  MGIC INVESTMENT

AIR CHINA LTD

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, AIR CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

MGIC INVESTMENT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MGIC INVESTMENT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, MGIC INVESTMENT is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AIR CHINA and MGIC INVESTMENT

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

The idea behind AIR CHINA LTD and MGIC INVESTMENT 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.