Correlation Between China Aircraft and Arrow Financial

Can any of the company-specific risk be diversified away by investing in both China Aircraft and Arrow Financial 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 China Aircraft and Arrow Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Aircraft Leasing and Arrow Financial, you can compare the effects of market volatilities on China Aircraft and Arrow Financial 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 China Aircraft with a short position of Arrow Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Aircraft and Arrow Financial.

Diversification Opportunities for China Aircraft and Arrow Financial

-0.21

Correlation Coefficient

China Aircraft  Arrow Financial

Very good diversification

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

Pair Corralation between China Aircraft and Arrow Financial

Assuming the 90 days horizon China Aircraft Leasing is expected to generate 1.34 times more return on investment than Arrow Financial. However, China Aircraft is 1.34 times more volatile than Arrow Financial. It trades about 0.13 of its potential returns per unit of risk. Arrow Financial is currently generating about -0.04 per unit of risk. If you would invest  40.00  in China Aircraft Leasing on December 28, 2024 and sell it today you would earn a total of  7.00  from holding China Aircraft Leasing or generate 17.5% return on investment over 90 days.

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

China Aircraft Leasing  vs.  Arrow Financial

China Aircraft Leasing

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Aircraft Leasing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, China Aircraft reported solid returns over the last few months and may actually be approaching a breakup point.

Arrow Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arrow Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Arrow Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with China Aircraft and Arrow Financial

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

The idea behind China Aircraft Leasing and Arrow Financial 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.