Correlation Between Iron Road and Air New

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

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

Diversification Opportunities for Iron Road and Air New

-0.81

Correlation Coefficient

Iron Road  Air New

Pay attention - limited upside

The 3 months correlation between Iron and Air is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road 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 Iron Road 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 Iron Road 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 Iron Road i.e., Iron Road and Air New go up and down completely randomly.

Pair Corralation between Iron Road and Air New

Assuming the 90 days trading horizon Iron Road is expected to under-perform the Air New. In addition to that, Iron Road is 1.4 times more volatile than Air New Zealand. It trades about -0.12 of its total potential returns per unit of risk. Air New Zealand is currently generating about 0.09 per unit of volatility. If you would invest  53.00  in Air New Zealand on December 28, 2024 and sell it today you would earn a total of  4.00  from holding Air New Zealand or generate 7.55% return on investment over 90 days.

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

Iron Road  vs.  Air New Zealand

Iron Road

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Air New Zealand

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Air New may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Iron Road and Air New

The main advantage of trading using opposite Iron Road and Air New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road 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 Iron Road 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.