Correlation Between Air China and Singapore Airlines

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

Diversification Opportunities for Air China and Singapore Airlines

0.06

Correlation Coefficient

Air China  Singapore Airlines

Significant diversification

The 3 months correlation between Air and Singapore is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Singapore Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore 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 Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of Air China i.e., Air China and Singapore Airlines go up and down completely randomly.

Pair Corralation between Air China and Singapore Airlines

Assuming the 90 days horizon Air China is expected to generate 5.04 times less return on investment than Singapore Airlines. But when comparing it to its historical volatility, Air China Limited is 1.33 times less risky than Singapore Airlines. It trades about 0.01 of its potential returns per unit of risk. Singapore Airlines is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  468.00  in Singapore Airlines on December 29, 2024 and sell it today you would earn a total of  23.00  from holding Singapore Airlines or generate 4.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.43%
Values	Daily Returns

Air China Limited  vs.  Singapore Airlines

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.

Singapore Airlines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Airlines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Singapore Airlines may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Air China and Singapore Airlines

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

The idea behind Air China Limited and Singapore 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.