Correlation Between Air China and Air New

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

Diversification Opportunities for Air China and Air New

-0.56

Correlation Coefficient

Air China  Air New

Excellent diversification

The 3 months correlation between Air and Air is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Air China Ltd and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand 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 Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of Air China i.e., Air China and Air New go up and down completely randomly.

Pair Corralation between Air China and Air New

Assuming the 90 days horizon Air China Ltd is expected to generate 0.66 times more return on investment than Air New. However, Air China Ltd is 1.51 times less risky than Air New. It trades about 0.28 of its potential returns per unit of risk. Air New Zealand is currently generating about -0.12 per unit of risk. If you would invest  1,081  in Air China Ltd on August 31, 2024 and sell it today you would earn a total of  197.00  from holding Air China Ltd or generate 18.22% return on investment over 90 days.

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

Air China Ltd  vs.  Air New Zealand

Air China

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 14 (%) 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.

Air New Zealand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air New Zealand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Air China and Air New

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

The idea behind Air China Ltd and Air New Zealand 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.