Correlation Between Air New and Genuine Parts

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

Diversification Opportunities for Air New and Genuine Parts

0.19

Correlation Coefficient

Air New  Genuine Parts

Average diversification

The 3 months correlation between Air and Genuine is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Genuine Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts 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 Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of Air New i.e., Air New and Genuine Parts go up and down completely randomly.

Pair Corralation between Air New and Genuine Parts

Assuming the 90 days trading horizon Air New Zealand is expected to generate 2.8 times more return on investment than Genuine Parts. However, Air New is 2.8 times more volatile than Genuine Parts. It trades about 0.08 of its potential returns per unit of risk. Genuine Parts is currently generating about 0.05 per unit of risk. If you would invest  32.00  in Air New Zealand on October 26, 2024 and sell it today you would earn a total of  1.00  from holding Air New Zealand or generate 3.13% return on investment over 90 days.

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

Air New Zealand  vs.  Genuine Parts

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

Genuine Parts

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Genuine Parts may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Air New and Genuine Parts

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

The idea behind Air New Zealand and Genuine Parts 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.