Correlation Between Air Canada and Lianhua Supermarket

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Can any of the company-specific risk be diversified away by investing in both Air Canada and Lianhua Supermarket 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 Canada and Lianhua Supermarket into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air Canada and Lianhua Supermarket Holdings, you can compare the effects of market volatilities on Air Canada and Lianhua Supermarket 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 Canada with a short position of Lianhua Supermarket. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and Lianhua Supermarket.

Diversification Opportunities for Air Canada and Lianhua Supermarket

-0.33
  Correlation Coefficient

Very good diversification

The 3 months correlation between Air and Lianhua is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada and Lianhua Supermarket Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lianhua Supermarket and Air Canada 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 Canada are associated (or correlated) with Lianhua Supermarket. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lianhua Supermarket has no effect on the direction of Air Canada i.e., Air Canada and Lianhua Supermarket go up and down completely randomly.

Pair Corralation between Air Canada and Lianhua Supermarket

Assuming the 90 days trading horizon Air Canada is expected to under-perform the Lianhua Supermarket. But the stock apears to be less risky and, when comparing its historical volatility, Air Canada is 2.73 times less risky than Lianhua Supermarket. The stock trades about -0.28 of its potential returns per unit of risk. The Lianhua Supermarket Holdings is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2.55  in Lianhua Supermarket Holdings on October 9, 2024 and sell it today you would earn a total of  0.70  from holding Lianhua Supermarket Holdings or generate 27.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Air Canada  vs.  Lianhua Supermarket Holdings

 Performance 
       Timeline  
Air Canada 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Air Canada unveiled solid returns over the last few months and may actually be approaching a breakup point.
Lianhua Supermarket 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lianhua Supermarket Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lianhua Supermarket reported solid returns over the last few months and may actually be approaching a breakup point.

Air Canada and Lianhua Supermarket Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Air Canada and Lianhua Supermarket

The main advantage of trading using opposite Air Canada and Lianhua Supermarket positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada position performs unexpectedly, Lianhua Supermarket 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 Lianhua Supermarket will offset losses from the drop in Lianhua Supermarket's long position.
The idea behind Air Canada and Lianhua Supermarket Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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