Correlation Between China Aircraft and Avis Budget

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

Diversification Opportunities for China Aircraft and Avis Budget

-0.58

Correlation Coefficient

China Aircraft  Avis Budget

Excellent diversification

The 3 months correlation between China and Avis is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding China Aircraft Leasing and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group 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 Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of China Aircraft i.e., China Aircraft and Avis Budget go up and down completely randomly.

Pair Corralation between China Aircraft and Avis Budget

Assuming the 90 days horizon China Aircraft Leasing is expected to under-perform the Avis Budget. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Aircraft Leasing is 3.85 times less risky than Avis Budget. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Avis Budget Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  7,636  in Avis Budget Group on September 13, 2024 and sell it today you would earn a total of  2,278  from holding Avis Budget Group or generate 29.83% return on investment over 90 days.

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

China Aircraft Leasing  vs.  Avis Budget Group

China Aircraft Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Aircraft Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Avis Budget Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Avis Budget reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Aircraft and Avis Budget

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

The idea behind China Aircraft Leasing and Avis Budget Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.