Correlation Between JAPAN AIRLINES and Singapore Airlines

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

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

Diversification Opportunities for JAPAN AIRLINES and Singapore Airlines

0.66

Correlation Coefficient

JAPAN AIRLINES  Singapore Airlines

Poor diversification

The 3 months correlation between JAPAN and Singapore is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding JAPAN AIRLINES and Singapore Airlines Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore 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 Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of JAPAN AIRLINES i.e., JAPAN AIRLINES and Singapore Airlines go up and down completely randomly.

Pair Corralation between JAPAN AIRLINES and Singapore Airlines

Assuming the 90 days trading horizon JAPAN AIRLINES is expected to generate 1.36 times more return on investment than Singapore Airlines. However, JAPAN AIRLINES is 1.36 times more volatile than Singapore Airlines Limited. It trades about 0.14 of its potential returns per unit of risk. Singapore Airlines Limited is currently generating about 0.05 per unit of risk. If you would invest  1,500  in JAPAN AIRLINES on December 28, 2024 and sell it today you would earn a total of  160.00  from holding JAPAN AIRLINES or generate 10.67% return on investment over 90 days.

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

JAPAN AIRLINES  vs.  Singapore Airlines Limited

JAPAN AIRLINES

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, JAPAN AIRLINES may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Singapore Airlines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Airlines Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Singapore Airlines 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 Singapore Airlines

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

The idea behind JAPAN AIRLINES and Singapore Airlines 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.