Correlation Between Air France and Singapore Airlines

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

By analyzing existing cross correlation between Air France KLM and Singapore Airlines, you can compare the effects of market volatilities on Air France and Singapore Airlines 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 Singapore Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air France and Singapore Airlines.

Diversification Opportunities for Air France and Singapore Airlines

0.47

Correlation Coefficient

Air France  Singapore Airlines

Very weak diversification

The 3 months correlation between Air and Singapore is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM and Singapore Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Airlines 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 are associated (or correlated) with Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of Air France i.e., Air France and Singapore Airlines go up and down completely randomly.

Pair Corralation between Air France and Singapore Airlines

Assuming the 90 days horizon Air France KLM is expected to under-perform the Singapore Airlines. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air France KLM is 2.69 times less risky than Singapore Airlines. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Singapore Airlines is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  451.00  in Singapore Airlines on October 24, 2024 and sell it today you would earn a total of  27.00  from holding Singapore Airlines or generate 5.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.95%
Values	Daily Returns

Air France KLM  vs.  Singapore Airlines

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Singapore Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Singapore Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Air France and Singapore Airlines

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

The idea behind Air France KLM and Singapore Airlines 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.