Correlation Between Air New and Microequities Asset

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

Diversification Opportunities for Air New and Microequities Asset

0.74

Correlation Coefficient

Air New  Microequities Asset

Poor diversification

The 3 months correlation between Air and Microequities is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Microequities Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microequities Asset 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 Microequities Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microequities Asset has no effect on the direction of Air New i.e., Air New and Microequities Asset go up and down completely randomly.

Pair Corralation between Air New and Microequities Asset

Assuming the 90 days trading horizon Air New is expected to generate 2.6 times less return on investment than Microequities Asset. But when comparing it to its historical volatility, Air New Zealand is 1.49 times less risky than Microequities Asset. It trades about 0.07 of its potential returns per unit of risk. Microequities Asset Management is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  49.00  in Microequities Asset Management on November 29, 2024 and sell it today you would earn a total of  8.00  from holding Microequities Asset Management or generate 16.33% return on investment over 90 days.

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

Air New Zealand  vs.  Microequities Asset Management

Air New Zealand

Risk-Adjusted Performance

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 uncertain basic indicators, Air New may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Microequities Asset

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Microequities Asset Management are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Microequities Asset unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air New and Microequities Asset

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

The idea behind Air New Zealand and Microequities Asset Management 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.