Correlation Between AirAsia Group and China Southern

Can any of the company-specific risk be diversified away by investing in both AirAsia Group and China Southern 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 AirAsia Group and China Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AirAsia Group Berhad and China Southern Airlines, you can compare the effects of market volatilities on AirAsia Group and China Southern 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 AirAsia Group with a short position of China Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of AirAsia Group and China Southern.

Diversification Opportunities for AirAsia Group and China Southern

0.49

Correlation Coefficient

AirAsia Group  China Southern

Very weak diversification

The 3 months correlation between AirAsia and China is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding AirAsia Group Berhad and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines and AirAsia Group 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 AirAsia Group Berhad are associated (or correlated) with China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of AirAsia Group i.e., AirAsia Group and China Southern go up and down completely randomly.

Pair Corralation between AirAsia Group and China Southern

Assuming the 90 days horizon AirAsia Group Berhad is expected to generate 4.4 times more return on investment than China Southern. However, AirAsia Group is 4.4 times more volatile than China Southern Airlines. It trades about 0.04 of its potential returns per unit of risk. China Southern Airlines is currently generating about -0.2 per unit of risk. If you would invest  20.00  in AirAsia Group Berhad on December 1, 2024 and sell it today you would lose (2.00) from holding AirAsia Group Berhad or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.0%
Values	Daily Returns

AirAsia Group Berhad  vs.  China Southern Airlines

AirAsia Group Berhad

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AirAsia Group Berhad are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, AirAsia Group reported solid returns over the last few months and may actually be approaching a breakup point.

China Southern Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Southern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with AirAsia Group and China Southern

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

The idea behind AirAsia Group Berhad and China Southern 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.