Correlation Between BOSTON BEER and AIR CHINA

Can any of the company-specific risk be diversified away by investing in both BOSTON BEER and AIR CHINA 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 BOSTON BEER and AIR CHINA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BOSTON BEER A and AIR CHINA LTD, you can compare the effects of market volatilities on BOSTON BEER and AIR CHINA 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 BOSTON BEER with a short position of AIR CHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BOSTON BEER and AIR CHINA.

Diversification Opportunities for BOSTON BEER and AIR CHINA

0.74

Correlation Coefficient

BOSTON BEER  AIR CHINA

Poor diversification

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

Pair Corralation between BOSTON BEER and AIR CHINA

Assuming the 90 days trading horizon BOSTON BEER A is expected to under-perform the AIR CHINA. But the stock apears to be less risky and, when comparing its historical volatility, BOSTON BEER A is 1.61 times less risky than AIR CHINA. The stock trades about -0.02 of its potential returns per unit of risk. The AIR CHINA LTD is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,200  in AIR CHINA LTD on October 11, 2024 and sell it today you would lose (80.00) from holding AIR CHINA LTD or give up 6.67% of portfolio value over 90 days.

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

BOSTON BEER A   vs.  AIR CHINA LTD

BOSTON BEER A

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BOSTON BEER A are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, BOSTON BEER may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AIR CHINA LTD

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, AIR CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BOSTON BEER and AIR CHINA

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

The idea behind BOSTON BEER A and AIR CHINA LTD 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.