Correlation Between Finnair Oyj and Air China

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

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

Diversification Opportunities for Finnair Oyj and Air China

0.23

Correlation Coefficient

Finnair Oyj  Air China

Modest diversification

The 3 months correlation between Finnair and Air is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Finnair Oyj and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited and Finnair Oyj 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 Finnair Oyj are associated (or correlated) with Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China Limited has no effect on the direction of Finnair Oyj i.e., Finnair Oyj and Air China go up and down completely randomly.

Pair Corralation between Finnair Oyj and Air China

Assuming the 90 days horizon Finnair Oyj is expected to generate 1.39 times more return on investment than Air China. However, Finnair Oyj is 1.39 times more volatile than Air China Limited. It trades about 0.27 of its potential returns per unit of risk. Air China Limited is currently generating about 0.01 per unit of risk. If you would invest  235.00  in Finnair Oyj on December 28, 2024 and sell it today you would earn a total of  164.00  from holding Finnair Oyj or generate 69.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	84.13%
Values	Daily Returns

Finnair Oyj  vs.  Air China Limited

Finnair Oyj

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Finnair Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Air China Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air China Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Air China is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Finnair Oyj and Air China

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

The idea behind Finnair Oyj and Air China Limited 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.