Correlation Between Air China and ANA Holdings

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

By analyzing existing cross correlation between Air China Ltd and ANA Holdings ADR, you can compare the effects of market volatilities on Air China and ANA Holdings 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 ANA Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and ANA Holdings.

Diversification Opportunities for Air China and ANA Holdings

-0.62

Correlation Coefficient

Air China  ANA Holdings

Excellent diversification

The 3 months correlation between Air and ANA is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and ANA Holdings ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ANA Holdings ADR 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 Ltd are associated (or correlated) with ANA Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ANA Holdings ADR has no effect on the direction of Air China i.e., Air China and ANA Holdings go up and down completely randomly.

Pair Corralation between Air China and ANA Holdings

Assuming the 90 days horizon Air China Ltd is expected to generate 1.27 times more return on investment than ANA Holdings. However, Air China is 1.27 times more volatile than ANA Holdings ADR. It trades about 0.0 of its potential returns per unit of risk. ANA Holdings ADR is currently generating about -0.01 per unit of risk. If you would invest  1,351  in Air China Ltd on September 4, 2024 and sell it today you would lose (128.00) from holding Air China Ltd or give up 9.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Air China Ltd  vs.  ANA Holdings ADR

Air China

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Air China showed solid returns over the last few months and may actually be approaching a breakup point.

ANA Holdings ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ANA Holdings ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ANA Holdings 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 ANA Holdings

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

The idea behind Air China Ltd and ANA Holdings ADR 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.