Correlation Between Kaiser Aluminum and China Southern

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

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

Diversification Opportunities for Kaiser Aluminum and China Southern

0.0

Correlation Coefficient

Kaiser Aluminum  China Southern

Pay attention - limited upside

The 3 months correlation between Kaiser and China is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines and Kaiser Aluminum 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 Kaiser Aluminum are associated (or correlated) with China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of Kaiser Aluminum i.e., Kaiser Aluminum and China Southern go up and down completely randomly.

Pair Corralation between Kaiser Aluminum and China Southern

Assuming the 90 days trading horizon Kaiser Aluminum is expected to under-perform the China Southern. But the stock apears to be less risky and, when comparing its historical volatility, Kaiser Aluminum is 1.64 times less risky than China Southern. The stock trades about -0.05 of its potential returns per unit of risk. The China Southern Airlines is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  50.00  in China Southern Airlines on December 29, 2024 and sell it today you would lose (3.00) from holding China Southern Airlines or give up 6.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Kaiser Aluminum  vs.  China Southern Airlines

Kaiser Aluminum

Risk-Adjusted Performance

Very Weak

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

China Southern Airlines

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Kaiser Aluminum and China Southern

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

The idea behind Kaiser Aluminum and China Southern 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.