Correlation Between Talen Energy and China Southern

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

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

Diversification Opportunities for Talen Energy and China Southern

0.58

Correlation Coefficient

Talen Energy  China Southern

Very weak diversification

The 3 months correlation between Talen and China is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Talen Energy 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 Talen Energy 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 Talen Energy 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 Talen Energy i.e., Talen Energy and China Southern go up and down completely randomly.

Pair Corralation between Talen Energy and China Southern

Considering the 90-day investment horizon Talen Energy is expected to generate 0.62 times more return on investment than China Southern. However, Talen Energy is 1.6 times less risky than China Southern. It trades about 0.13 of its potential returns per unit of risk. China Southern Airlines is currently generating about -0.19 per unit of risk. If you would invest  20,366  in Talen Energy on October 11, 2024 and sell it today you would earn a total of  1,193  from holding Talen Energy or generate 5.86% return on investment over 90 days.

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

Talen Energy  vs.  China Southern Airlines

Talen Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

China Southern Airlines

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, China Southern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Talen Energy and China Southern

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

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.