Correlation Between China Southern and Sun Country

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

Diversification Opportunities for China Southern and Sun Country

0.06

Correlation Coefficient

China Southern  Sun Country

Significant diversification

The 3 months correlation between China and Sun is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and Sun Country Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Country Airlines 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 Sun Country. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Country Airlines has no effect on the direction of China Southern i.e., China Southern and Sun Country go up and down completely randomly.

Pair Corralation between China Southern and Sun Country

Assuming the 90 days horizon China Southern Airlines is expected to under-perform the Sun Country. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Southern Airlines is 1.18 times less risky than Sun Country. The pink sheet trades about -0.16 of its potential returns per unit of risk. The Sun Country Airlines is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,433  in Sun Country Airlines on December 18, 2024 and sell it today you would lose (80.00) from holding Sun Country Airlines or give up 5.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.44%
Values	Daily Returns

China Southern Airlines  vs.  Sun Country Airlines

China Southern Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Southern Airlines 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 forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Sun Country Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sun Country Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Sun Country is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Southern and Sun Country

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

The idea behind China Southern Airlines and Sun Country Airlines 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.