Correlation Between Singapore Airlines and China Merchants

Can any of the company-specific risk be diversified away by investing in both Singapore Airlines and China Merchants 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 China Merchants 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 China Merchants Port, you can compare the effects of market volatilities on Singapore Airlines and China Merchants 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 China Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Singapore Airlines and China Merchants.

Diversification Opportunities for Singapore Airlines and China Merchants

-0.46

Correlation Coefficient

Singapore Airlines  China Merchants

Very good diversification

The 3 months correlation between Singapore and China is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Singapore Airlines Limited and China Merchants Port in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Merchants Port 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 China Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Merchants Port has no effect on the direction of Singapore Airlines i.e., Singapore Airlines and China Merchants go up and down completely randomly.

Pair Corralation between Singapore Airlines and China Merchants

Assuming the 90 days trading horizon Singapore Airlines Limited is expected to generate 0.45 times more return on investment than China Merchants. However, Singapore Airlines Limited is 2.2 times less risky than China Merchants. It trades about 0.05 of its potential returns per unit of risk. China Merchants Port is currently generating about -0.03 per unit of risk. If you would invest  449.00  in Singapore Airlines Limited on December 22, 2024 and sell it today you would earn a total of  11.00  from holding Singapore Airlines Limited or generate 2.45% return on investment over 90 days.

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

Singapore Airlines Limited  vs.  China Merchants Port

Singapore Airlines

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Airlines Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Singapore Airlines is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Merchants Port

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Singapore Airlines and China Merchants

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

The idea behind Singapore Airlines Limited and China Merchants Port 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.