Correlation Between Insurance Australia and China Eastern

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

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

Diversification Opportunities for Insurance Australia and China Eastern

-0.02

Correlation Coefficient

Insurance Australia  China Eastern

Good diversification

The 3 months correlation between Insurance and China is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia 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 Insurance Australia 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 Insurance Australia 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 Insurance Australia i.e., Insurance Australia and China Eastern go up and down completely randomly.

Pair Corralation between Insurance Australia and China Eastern

Assuming the 90 days horizon Insurance Australia Group is expected to under-perform the China Eastern. But the stock apears to be less risky and, when comparing its historical volatility, Insurance Australia Group is 1.14 times less risky than China Eastern. The stock trades about -0.08 of its potential returns per unit of risk. The China Eastern Airlines is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  31.00  in China Eastern Airlines on December 23, 2024 and sell it today you would lose (2.00) from holding China Eastern Airlines or give up 6.45% of portfolio value over 90 days.

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

Insurance Australia Group  vs.  China Eastern Airlines

Insurance Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Insurance Australia and China Eastern

The main advantage of trading using opposite Insurance Australia and China Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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 Insurance Australia 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.