Correlation Between Japan Airlines and Air France

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

By analyzing existing cross correlation between Japan Airlines Ltd and Air France KLM, you can compare the effects of market volatilities on Japan Airlines and Air France 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 Air France. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Airlines and Air France.

Diversification Opportunities for Japan Airlines and Air France

-0.58

Correlation Coefficient

Japan Airlines  Air France

Excellent diversification

The 3 months correlation between Japan and Air is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Japan Airlines Ltd and Air France KLM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM 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 Ltd are associated (or correlated) with Air France. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Japan Airlines i.e., Japan Airlines and Air France go up and down completely randomly.

Pair Corralation between Japan Airlines and Air France

If you would invest  1,089  in Japan Airlines Ltd on September 5, 2024 and sell it today you would earn a total of  0.00  from holding Japan Airlines Ltd or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	0.4%
Values	Daily Returns

Japan Airlines Ltd  vs.  Air France KLM

Japan Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Airlines Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Japan Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Japan Airlines and Air France

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

The idea behind Japan Airlines Ltd and Air France KLM 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..