Correlation Between Air New and Fortive

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

Diversification Opportunities for Air New and Fortive

0.66

Correlation Coefficient

Air New  Fortive

Poor diversification

The 3 months correlation between Air and Fortive is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Fortive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortive 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 Fortive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortive has no effect on the direction of Air New i.e., Air New and Fortive go up and down completely randomly.

Pair Corralation between Air New and Fortive

Assuming the 90 days trading horizon Air New is expected to generate 1.58 times less return on investment than Fortive. In addition to that, Air New is 2.76 times more volatile than Fortive. It trades about 0.08 of its total potential returns per unit of risk. Fortive is currently generating about 0.37 per unit of volatility. If you would invest  7,136  in Fortive on October 23, 2024 and sell it today you would earn a total of  440.00  from holding Fortive or generate 6.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.12%
Values	Daily Returns

Air New Zealand  vs.  Fortive

Air New Zealand

Risk-Adjusted Performance

5 of 100

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

Fortive

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fortive are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Fortive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Air New and Fortive

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

The idea behind Air New Zealand and Fortive 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.