Correlation Between SkyWest and Air China

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

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

Diversification Opportunities for SkyWest and Air China

0.01

Correlation Coefficient

SkyWest  Air China

Significant diversification

The 3 months correlation between SkyWest and Air is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited and SkyWest 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 SkyWest 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 Limited has no effect on the direction of SkyWest i.e., SkyWest and Air China go up and down completely randomly.

Pair Corralation between SkyWest and Air China

Given the investment horizon of 90 days SkyWest is expected to under-perform the Air China. In addition to that, SkyWest is 1.09 times more volatile than Air China Limited. It trades about -0.07 of its total potential returns per unit of risk. Air China Limited is currently generating about 0.01 per unit of volatility. If you would invest  65.00  in Air China Limited on December 28, 2024 and sell it today you would earn a total of  0.00  from holding Air China Limited or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.89%
Values	Daily Returns

SkyWest  vs.  Air China Limited

SkyWest

Risk-Adjusted Performance

Very Weak

Over the last 90 days SkyWest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Air China Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SkyWest and Air China

The main advantage of trading using opposite SkyWest and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SkyWest 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 SkyWest and Air China Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.