Correlation Between PACCAR and China Aircraft

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

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

Diversification Opportunities for PACCAR and China Aircraft

-0.44

Correlation Coefficient

PACCAR  China Aircraft

Very good diversification

The 3 months correlation between PACCAR and China is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and China Aircraft Leasing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Aircraft Leasing and PACCAR 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 PACCAR Inc are associated (or correlated) with China Aircraft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Aircraft Leasing has no effect on the direction of PACCAR i.e., PACCAR and China Aircraft go up and down completely randomly.

Pair Corralation between PACCAR and China Aircraft

Given the investment horizon of 90 days PACCAR Inc is expected to generate 1.96 times more return on investment than China Aircraft. However, PACCAR is 1.96 times more volatile than China Aircraft Leasing. It trades about 0.04 of its potential returns per unit of risk. China Aircraft Leasing is currently generating about -0.13 per unit of risk. If you would invest  10,027  in PACCAR Inc on October 4, 2024 and sell it today you would earn a total of  375.00  from holding PACCAR Inc or generate 3.74% return on investment over 90 days.

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

PACCAR Inc  vs.  China Aircraft Leasing

PACCAR Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, PACCAR is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

China Aircraft Leasing

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PACCAR and China Aircraft

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

The idea behind PACCAR Inc and China Aircraft Leasing 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 Anywhere module to track or share privately all of your investments from the convenience of any device.