Correlation Between China Eastern and Air New

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

By analyzing existing cross correlation between China Eastern Airlines and Air New Zealand, you can compare the effects of market volatilities on China Eastern and Air New 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 Eastern with a short position of Air New. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Eastern and Air New.

Diversification Opportunities for China Eastern and Air New

-0.31

Correlation Coefficient

China Eastern  Air New

Very good diversification

The 3 months correlation between China and Air is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding China Eastern Airlines and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand and China Eastern 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 Eastern Airlines are associated (or correlated) with Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of China Eastern i.e., China Eastern and Air New go up and down completely randomly.

Pair Corralation between China Eastern and Air New

Assuming the 90 days horizon China Eastern Airlines is expected to generate 0.79 times more return on investment than Air New. However, China Eastern Airlines is 1.26 times less risky than Air New. It trades about 0.16 of its potential returns per unit of risk. Air New Zealand is currently generating about -0.12 per unit of risk. If you would invest  26.00  in China Eastern Airlines on August 31, 2024 and sell it today you would earn a total of  3.00  from holding China Eastern Airlines or generate 11.54% return on investment over 90 days.

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

China Eastern Airlines  vs.  Air New Zealand

China Eastern Airlines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

Air New Zealand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air New Zealand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with China Eastern and Air New

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

The idea behind China Eastern Airlines and Air New Zealand 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.