Correlation Between Air New and Ridley

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

Diversification Opportunities for Air New and Ridley

0.49

Correlation Coefficient

Air New  Ridley

Very weak diversification

The 3 months correlation between Air and Ridley is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Ridley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ridley 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 Ridley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ridley has no effect on the direction of Air New i.e., Air New and Ridley go up and down completely randomly.

Pair Corralation between Air New and Ridley

Assuming the 90 days trading horizon Air New Zealand is expected to under-perform the Ridley. But the stock apears to be less risky and, when comparing its historical volatility, Air New Zealand is 1.33 times less risky than Ridley. The stock trades about -0.02 of its potential returns per unit of risk. The Ridley is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  190.00  in Ridley on October 10, 2024 and sell it today you would earn a total of  83.00  from holding Ridley or generate 43.68% 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.  Ridley

Air New Zealand

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 11 (%) 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.

Ridley

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Air New and Ridley

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

The idea behind Air New Zealand and Ridley 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.