Correlation Between Air New and Cosmo Metals

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

Diversification Opportunities for Air New and Cosmo Metals

0.18

Correlation Coefficient

Air New  Cosmo Metals

Average diversification

The 3 months correlation between Air and Cosmo is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Cosmo Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosmo 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 Cosmo Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosmo Metals has no effect on the direction of Air New i.e., Air New and Cosmo Metals go up and down completely randomly.

Pair Corralation between Air New and Cosmo Metals

Assuming the 90 days trading horizon Air New Zealand is expected to generate 0.41 times more return on investment than Cosmo Metals. However, Air New Zealand is 2.41 times less risky than Cosmo Metals. It trades about 0.16 of its potential returns per unit of risk. Cosmo Metals is currently generating about -0.01 per unit of risk. If you would invest  48.00  in Air New Zealand on October 25, 2024 and sell it today you would earn a total of  7.00  from holding Air New Zealand or generate 14.58% return on investment over 90 days.

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

Air New Zealand  vs.  Cosmo Metals

Air New Zealand

Risk-Adjusted Performance

12 of 100

Good

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

Cosmo Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cosmo Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Cosmo Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Air New and Cosmo Metals

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

The idea behind Air New Zealand and Cosmo Metals 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.