Correlation Between Air New and Kaiser Aluminum

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

Diversification Opportunities for Air New and Kaiser Aluminum

0.21

Correlation Coefficient

Air New  Kaiser Aluminum

Modest diversification

The 3 months correlation between Air and Kaiser is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Air New i.e., Air New and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Air New and Kaiser Aluminum

Assuming the 90 days trading horizon Air New is expected to generate 24.4 times less return on investment than Kaiser Aluminum. But when comparing it to its historical volatility, Air New Zealand is 1.48 times less risky than Kaiser Aluminum. It trades about 0.0 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  5,271  in Kaiser Aluminum on September 27, 2024 and sell it today you would earn a total of  1,379  from holding Kaiser Aluminum or generate 26.16% return on investment over 90 days.

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

Air New Zealand  vs.  Kaiser Aluminum

Air New Zealand

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 4 (%) 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 January 2025.

Kaiser Aluminum

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Kaiser Aluminum is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Air New and Kaiser Aluminum

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

The idea behind Air New Zealand and Kaiser Aluminum 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.