Correlation Between Air France and Diagnostic Medical

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

By analyzing existing cross correlation between Air France KLM SA and Diagnostic Medical Systems, you can compare the effects of market volatilities on Air France and Diagnostic Medical 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 France with a short position of Diagnostic Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air France and Diagnostic Medical.

Diversification Opportunities for Air France and Diagnostic Medical

0.76

Correlation Coefficient

Air France  Diagnostic Medical

Poor diversification

The 3 months correlation between Air and Diagnostic is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM SA and Diagnostic Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diagnostic Medical and Air France 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 France KLM SA are associated (or correlated) with Diagnostic Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diagnostic Medical has no effect on the direction of Air France i.e., Air France and Diagnostic Medical go up and down completely randomly.

Pair Corralation between Air France and Diagnostic Medical

Assuming the 90 days horizon Air France is expected to generate 1.41 times less return on investment than Diagnostic Medical. In addition to that, Air France is 1.37 times more volatile than Diagnostic Medical Systems. It trades about 0.07 of its total potential returns per unit of risk. Diagnostic Medical Systems is currently generating about 0.14 per unit of volatility. If you would invest  75.00  in Diagnostic Medical Systems on December 23, 2024 and sell it today you would earn a total of  24.00  from holding Diagnostic Medical Systems or generate 32.0% return on investment over 90 days.

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

Air France KLM SA  vs.  Diagnostic Medical Systems

Air France KLM

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air France sustained solid returns over the last few months and may actually be approaching a breakup point.

Diagnostic Medical

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diagnostic Medical Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Diagnostic Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air France and Diagnostic Medical

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

The idea behind Air France KLM SA and Diagnostic Medical Systems 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..