Correlation Between Air New and Premier Investments

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

Diversification Opportunities for Air New and Premier Investments

0.35

Correlation Coefficient

Air New  Premier Investments

Weak diversification

The 3 months correlation between Air and Premier is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Premier Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Investments 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 Premier Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Investments has no effect on the direction of Air New i.e., Air New and Premier Investments go up and down completely randomly.

Pair Corralation between Air New and Premier Investments

Assuming the 90 days trading horizon Air New is expected to generate 1.47 times less return on investment than Premier Investments. But when comparing it to its historical volatility, Air New Zealand is 1.09 times less risky than Premier Investments. It trades about 0.15 of its potential returns per unit of risk. Premier Investments is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,300  in Premier Investments on September 5, 2024 and sell it today you would earn a total of  206.00  from holding Premier Investments or generate 6.24% return on investment over 90 days.

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

Air New Zealand  vs.  Premier Investments

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. 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.

Premier Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premier Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Premier Investments 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 Premier Investments

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

The idea behind Air New Zealand and Premier Investments 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.