Correlation Between Air France and Finnair Oyj

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

Diversification Opportunities for Air France and Finnair Oyj

0.84

Correlation Coefficient

Air France  Finnair Oyj

Very poor diversification

The 3 months correlation between Air and Finnair is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM SA and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj 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 Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of Air France i.e., Air France and Finnair Oyj go up and down completely randomly.

Pair Corralation between Air France and Finnair Oyj

Assuming the 90 days horizon Air France is expected to generate 1.5 times less return on investment than Finnair Oyj. In addition to that, Air France is 1.77 times more volatile than Finnair Oyj. It trades about 0.1 of its total potential returns per unit of risk. Finnair Oyj is currently generating about 0.27 per unit of volatility. If you would invest  235.00  in Finnair Oyj on December 29, 2024 and sell it today you would earn a total of  164.00  from holding Finnair Oyj or generate 69.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.83%
Values	Daily Returns

Air France KLM SA  vs.  Finnair Oyj

Air France KLM

Risk-Adjusted Performance

OK

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

Finnair Oyj

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Finnair Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air France and Finnair Oyj

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

The idea behind Air France KLM SA and Finnair Oyj 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.