Correlation Between China Southern and Harley Davidson

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

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

Diversification Opportunities for China Southern and Harley Davidson

-0.43

Correlation Coefficient

China Southern  Harley Davidson

Very good diversification

The 3 months correlation between China and Harley is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson and China Southern 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 Southern Airlines are associated (or correlated) with Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of China Southern i.e., China Southern and Harley Davidson go up and down completely randomly.

Pair Corralation between China Southern and Harley Davidson

Assuming the 90 days horizon China Southern Airlines is expected to under-perform the Harley Davidson. In addition to that, China Southern is 1.83 times more volatile than Harley Davidson. It trades about -0.25 of its total potential returns per unit of risk. Harley Davidson is currently generating about -0.26 per unit of volatility. If you would invest  3,083  in Harley Davidson on October 25, 2024 and sell it today you would lose (257.00) from holding Harley Davidson or give up 8.34% of portfolio value over 90 days.

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

China Southern Airlines  vs.  Harley Davidson

China Southern Airlines

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, China Southern reported solid returns over the last few months and may actually be approaching a breakup point.

Harley Davidson

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with China Southern and Harley Davidson

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

The idea behind China Southern Airlines and Harley Davidson 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.