Correlation Between JAPAN AIRLINES and China Eastern

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

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

Diversification Opportunities for JAPAN AIRLINES and China Eastern

-0.06

Correlation Coefficient

JAPAN AIRLINES  China Eastern

Good diversification

The 3 months correlation between JAPAN and China is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES 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 JAPAN AIRLINES 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 JAPAN AIRLINES 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 JAPAN AIRLINES i.e., JAPAN AIRLINES and China Eastern go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and China Eastern

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to generate 0.5 times more return on investment than China Eastern. However, JAPAN AIRLINES is 2.01 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 0.01 per unit of risk. If you would invest  1,520  in JAPAN AIRLINES on December 21, 2024 and sell it today you would earn a total of  110.00  from holding JAPAN AIRLINES or generate 7.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

JAPAN AIRLINES  vs.  China Eastern Airlines

JAPAN AIRLINES

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, JAPAN AIRLINES may actually be approaching a critical reversion point that can send shares even higher in April 2025.

China Eastern Airlines

Risk-Adjusted Performance

Very Weak

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

Pair Trading with JAPAN AIRLINES and China Eastern

The main advantage of trading using opposite JAPAN AIRLINES and China Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAPAN AIRLINES 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 JAPAN AIRLINES 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.