Correlation Between Mesa Air and China Eastern

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

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

Diversification Opportunities for Mesa Air and China Eastern

-0.27

Correlation Coefficient

Mesa Air  China Eastern

Very good diversification

The 3 months correlation between Mesa and China is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Air Group 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 Mesa Air 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 Mesa Air Group 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 Mesa Air i.e., Mesa Air and China Eastern go up and down completely randomly.

Pair Corralation between Mesa Air and China Eastern

Given the investment horizon of 90 days Mesa Air Group is expected to under-perform the China Eastern. But the stock apears to be less risky and, when comparing its historical volatility, Mesa Air Group is 1.06 times less risky than China Eastern. The stock trades about -0.01 of its potential returns per unit of risk. The China Eastern Airlines is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  24.00  in China Eastern Airlines on August 31, 2024 and sell it today you would earn a total of  5.00  from holding China Eastern Airlines or generate 20.83% return on investment over 90 days.

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

Mesa Air Group  vs.  China Eastern Airlines

Mesa Air Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mesa Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mesa Air is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

China Eastern Airlines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mesa Air and China Eastern

The main advantage of trading using opposite Mesa Air and China Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mesa Air 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 Mesa Air Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.