Correlation Between Air New and Australian Potash

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

By analyzing existing cross correlation between Air New Zealand and Australian Potash, you can compare the effects of market volatilities on Air New and Australian Potash 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 New with a short position of Australian Potash. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Australian Potash.

Diversification Opportunities for Air New and Australian Potash

-0.8

Correlation Coefficient

Air New  Australian Potash

Pay attention - limited upside

The 3 months correlation between Air and Australian is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Australian Potash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Potash and Air New 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 New Zealand are associated (or correlated) with Australian Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Potash has no effect on the direction of Air New i.e., Air New and Australian Potash go up and down completely randomly.

Pair Corralation between Air New and Australian Potash

Assuming the 90 days trading horizon Air New Zealand is expected to generate 0.09 times more return on investment than Australian Potash. However, Air New Zealand is 10.75 times less risky than Australian Potash. It trades about 0.13 of its potential returns per unit of risk. Australian Potash is currently generating about -0.24 per unit of risk. If you would invest  51.00  in Air New Zealand on October 9, 2024 and sell it today you would earn a total of  2.00  from holding Air New Zealand or generate 3.92% return on investment over 90 days.

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

Air New Zealand  vs.  Australian Potash

Air New Zealand

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air New may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Australian Potash

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australian Potash has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Air New and Australian Potash

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

The idea behind Air New Zealand and Australian Potash 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.