Correlation Between Insulet Corp and China Eastern

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

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

Diversification Opportunities for Insulet Corp and China Eastern

0.78

Correlation Coefficient

Insulet Corp  China Eastern

Poor diversification

The 3 months correlation between Insulet and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Insulet Corp and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines and Insulet Corp 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 Insulet Corp are associated (or correlated) with China Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of Insulet Corp i.e., Insulet Corp and China Eastern go up and down completely randomly.

Pair Corralation between Insulet Corp and China Eastern

Assuming the 90 days trading horizon Insulet Corp is expected to generate 2.55 times less return on investment than China Eastern. But when comparing it to its historical volatility, Insulet Corp is 1.93 times less risky than China Eastern. It trades about 0.1 of its potential returns per unit of risk. China Eastern Airlines is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  28.00  in China Eastern Airlines on October 25, 2024 and sell it today you would earn a total of  4.00  from holding China Eastern Airlines or generate 14.29% return on investment over 90 days.

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

Insulet Corp  vs.  China Eastern Airlines

Insulet Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Insulet Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Insulet Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

China Eastern Airlines

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Insulet Corp and China Eastern

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

The idea behind Insulet Corp and China Eastern 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 Stocks Directory module to find actively traded stocks across global markets.