Correlation Between Air China and Air France

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

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

Diversification Opportunities for Air China and Air France

0.28

Correlation Coefficient

Air China  Air France

Modest diversification

The 3 months correlation between Air and Air is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Air France KLM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM and Air China 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 China Limited are associated (or correlated) with Air France. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Air China i.e., Air China and Air France go up and down completely randomly.

Pair Corralation between Air China and Air France

Assuming the 90 days horizon Air China is expected to generate 22.31 times less return on investment than Air France. But when comparing it to its historical volatility, Air China Limited is 2.49 times less risky than Air France. It trades about 0.01 of its potential returns per unit of risk. Air France KLM SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  825.00  in Air France KLM SA on December 28, 2024 and sell it today you would earn a total of  264.00  from holding Air France KLM SA or generate 32.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.33%
Values	Daily Returns

Air China Limited  vs.  Air France KLM SA

Air China Limited

Risk-Adjusted Performance

Very Weak

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

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 8 (%) 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.

Pair Trading with Air China and Air France

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

The idea behind Air China Limited and Air France KLM SA 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.