Correlation Between Air New and Yanzhou Coal

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

Diversification Opportunities for Air New and Yanzhou Coal

-0.82

Correlation Coefficient

Air New  Yanzhou Coal

Pay attention - limited upside

The 3 months correlation between Air and Yanzhou is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Yanzhou Coal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yanzhou Coal Mining 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 Yanzhou Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yanzhou Coal Mining has no effect on the direction of Air New i.e., Air New and Yanzhou Coal go up and down completely randomly.

Pair Corralation between Air New and Yanzhou Coal

Assuming the 90 days trading horizon Air New Zealand is expected to generate 1.31 times more return on investment than Yanzhou Coal. However, Air New is 1.31 times more volatile than Yanzhou Coal Mining. It trades about 0.07 of its potential returns per unit of risk. Yanzhou Coal Mining is currently generating about -0.17 per unit of risk. If you would invest  30.00  in Air New Zealand on October 24, 2024 and sell it today you would earn a total of  3.00  from holding Air New Zealand or generate 10.0% return on investment over 90 days.

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

Air New Zealand  vs.  Yanzhou Coal Mining

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.

Yanzhou Coal Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yanzhou Coal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Air New and Yanzhou Coal

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

The idea behind Air New Zealand and Yanzhou Coal Mining 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.