Correlation Between Singapore Airlines and Air New

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

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

Diversification Opportunities for Singapore Airlines and Air New

0.65

Correlation Coefficient

Singapore Airlines  Air New

Poor diversification

The 3 months correlation between Singapore and Air is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Singapore Airlines Limited and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand and Singapore Airlines 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 Singapore Airlines Limited are associated (or correlated) with Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of Singapore Airlines i.e., Singapore Airlines and Air New go up and down completely randomly.

Pair Corralation between Singapore Airlines and Air New

Assuming the 90 days trading horizon Singapore Airlines is expected to generate 18.64 times less return on investment than Air New. But when comparing it to its historical volatility, Singapore Airlines Limited is 2.36 times less risky than Air New. It trades about 0.01 of its potential returns per unit of risk. Air New Zealand is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  29.00  in Air New Zealand on October 25, 2024 and sell it today you would earn a total of  4.00  from holding Air New Zealand or generate 13.79% return on investment over 90 days.

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

Singapore Airlines Limited  vs.  Air New Zealand

Singapore Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Airlines Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Singapore Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Air New Zealand

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Air New exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Singapore Airlines and Air New

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

The idea behind Singapore Airlines Limited and Air New Zealand 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.