Correlation Between Air New and Cyclone Metals

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

Diversification Opportunities for Air New and Cyclone Metals

0.53

Correlation Coefficient

Air New  Cyclone Metals

Very weak diversification

The 3 months correlation between Air and Cyclone is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Cyclone Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cyclone Metals 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 Cyclone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cyclone Metals has no effect on the direction of Air New i.e., Air New and Cyclone Metals go up and down completely randomly.

Pair Corralation between Air New and Cyclone Metals

Assuming the 90 days trading horizon Air New Zealand is expected to under-perform the Cyclone Metals. But the stock apears to be less risky and, when comparing its historical volatility, Air New Zealand is 6.29 times less risky than Cyclone Metals. The stock trades about -0.02 of its potential returns per unit of risk. The Cyclone Metals Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Cyclone Metals Limited on September 20, 2024 and sell it today you would earn a total of  2.20  from holding Cyclone Metals Limited or generate 110.0% return on investment over 90 days.

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

Air New Zealand  vs.  Cyclone Metals Limited

Air New Zealand

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Air New is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cyclone Metals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cyclone Metals Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Cyclone Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air New and Cyclone Metals

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

The idea behind Air New Zealand and Cyclone Metals Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.