Correlation Between ScanSource and China Southern

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

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

Diversification Opportunities for ScanSource and China Southern

0.72

Correlation Coefficient

ScanSource  China Southern

Poor diversification

The 3 months correlation between ScanSource and China is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding ScanSource 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 ScanSource 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 ScanSource 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 ScanSource i.e., ScanSource and China Southern go up and down completely randomly.

Pair Corralation between ScanSource and China Southern

Assuming the 90 days horizon ScanSource is expected to under-perform the China Southern. But the stock apears to be less risky and, when comparing its historical volatility, ScanSource is 1.26 times less risky than China Southern. The stock trades about -0.19 of its potential returns per unit of risk. The China Southern Airlines is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  44.00  in China Southern Airlines on December 1, 2024 and sell it today you would earn a total of  2.00  from holding China Southern Airlines or generate 4.55% return on investment over 90 days.

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

ScanSource  vs.  China Southern Airlines

ScanSource

Risk-Adjusted Performance

Very Weak

Over the last 90 days ScanSource has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

China Southern Airlines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical indicators, China Southern may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ScanSource and China Southern

The main advantage of trading using opposite ScanSource and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ScanSource 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 ScanSource 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.