Correlation Between Singapore Airlines and Air China

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

By analyzing existing cross correlation between Singapore Airlines and Air China Ltd, you can compare the effects of market volatilities on Singapore Airlines and Air China 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 China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Singapore Airlines and Air China.

Diversification Opportunities for Singapore Airlines and Air China

-0.43

Correlation Coefficient

Singapore Airlines  Air China

Very good diversification

The 3 months correlation between Singapore and Air is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Singapore Airlines and Air China Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China 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 are associated (or correlated) with Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China has no effect on the direction of Singapore Airlines i.e., Singapore Airlines and Air China go up and down completely randomly.

Pair Corralation between Singapore Airlines and Air China

Assuming the 90 days horizon Singapore Airlines is expected to under-perform the Air China. But the pink sheet apears to be less risky and, when comparing its historical volatility, Singapore Airlines is 3.74 times less risky than Air China. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Air China Ltd is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  848.00  in Air China Ltd on September 2, 2024 and sell it today you would earn a total of  493.00  from holding Air China Ltd or generate 58.14% 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  vs.  Air China Ltd

Singapore Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Singapore Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Air China

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Air China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Singapore Airlines and Air China

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

The idea behind Singapore Airlines and Air China Ltd 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..