Correlation Between China International and International Consolidated

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

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

Diversification Opportunities for China International and International Consolidated

-0.68

Correlation Coefficient

China International  International Consolidated

Excellent diversification

The 3 months correlation between China and International is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding China International Marine and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated and China International 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 China International Marine are associated (or correlated) with International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of China International i.e., China International and International Consolidated go up and down completely randomly.

Pair Corralation between China International and International Consolidated

Assuming the 90 days horizon China International Marine is expected to under-perform the International Consolidated. In addition to that, China International is 1.11 times more volatile than International Consolidated Airlines. It trades about -0.08 of its total potential returns per unit of risk. International Consolidated Airlines is currently generating about 0.33 per unit of volatility. If you would invest  234.00  in International Consolidated Airlines on October 11, 2024 and sell it today you would earn a total of  122.00  from holding International Consolidated Airlines or generate 52.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

China International Marine  vs.  International Consolidated Air

China International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China International Marine 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.

International Consolidated

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, International Consolidated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China International and International Consolidated

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

The idea behind China International Marine and International Consolidated 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.