Correlation Between Air China and Japan Airlines

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

Diversification Opportunities for Air China and Japan Airlines

0.0

Correlation Coefficient

Air China  Japan Airlines

Pay attention - limited upside

The 3 months correlation between Air and Japan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Japan Airlines Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Airlines 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 Japan Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Airlines has no effect on the direction of Air China i.e., Air China and Japan Airlines go up and down completely randomly.

Pair Corralation between Air China and Japan Airlines

If you would invest  65.00  in Air China Limited on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Air China Limited or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Air China Limited  vs.  Japan Airlines Ltd

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.

Japan Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Airlines Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Japan Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Air China and Japan Airlines

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

The idea behind Air China Limited and Japan Airlines Ltd 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.