Correlation Between Air Transport and Singapore Airlines

Can any of the company-specific risk be diversified away by investing in both Air Transport and Singapore Airlines 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 Transport and Singapore Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Transport Services and Singapore Airlines, you can compare the effects of market volatilities on Air Transport and Singapore Airlines 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 Transport with a short position of Singapore Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Transport and Singapore Airlines.

Diversification Opportunities for Air Transport and Singapore Airlines

-0.6

Correlation Coefficient

Air Transport  Singapore Airlines

Excellent diversification

The 3 months correlation between Air and Singapore is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Air Transport Services and Singapore Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Airlines and Air Transport 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 Transport Services are associated (or correlated) with Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of Air Transport i.e., Air Transport and Singapore Airlines go up and down completely randomly.

Pair Corralation between Air Transport and Singapore Airlines

Given the investment horizon of 90 days Air Transport Services is expected to generate 0.11 times more return on investment than Singapore Airlines. However, Air Transport Services is 8.94 times less risky than Singapore Airlines. It trades about 0.51 of its potential returns per unit of risk. Singapore Airlines is currently generating about 0.0 per unit of risk. If you would invest  2,190  in Air Transport Services on October 24, 2024 and sell it today you would earn a total of  20.50  from holding Air Transport Services or generate 0.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Air Transport Services  vs.  Singapore Airlines

Air Transport Services

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Air Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Singapore Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Singapore Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Air Transport and Singapore Airlines

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

The idea behind Air Transport Services and Singapore Airlines 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.