Correlation Between Air China and Finnair Oyj

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

Diversification Opportunities for Air China and Finnair Oyj

0.23

Correlation Coefficient

Air China  Finnair Oyj

Modest diversification

The 3 months correlation between Air and Finnair is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj 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 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 China i.e., Air China and Finnair Oyj go up and down completely randomly.

Pair Corralation between Air China and Finnair Oyj

Assuming the 90 days horizon Air China is expected to generate 32.97 times less return on investment than Finnair Oyj. But when comparing it to its historical volatility, Air China Limited is 1.39 times less risky than Finnair Oyj. It trades about 0.01 of its potential returns per unit of risk. Finnair Oyj is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  235.00  in Finnair Oyj on December 28, 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	Very Weak
Accuracy	84.13%
Values	Daily Returns

Air China Limited  vs.  Finnair Oyj

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.

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 China and Finnair Oyj

The main advantage of trading using opposite Air China and Finnair Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China 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 China Limited 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 Commodity Directory module to find actively traded commodities issued by global exchanges.