Correlation Between China Southern and ScanSource

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

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

Diversification Opportunities for China Southern and ScanSource

0.48

Correlation Coefficient

China Southern  ScanSource

Very weak diversification

The 3 months correlation between China and ScanSource is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource and China Southern 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 China Southern Airlines are associated (or correlated) with ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of China Southern i.e., China Southern and ScanSource go up and down completely randomly.

Pair Corralation between China Southern and ScanSource

Assuming the 90 days trading horizon China Southern Airlines is expected to generate 1.49 times more return on investment than ScanSource. However, China Southern is 1.49 times more volatile than ScanSource. It trades about 0.19 of its potential returns per unit of risk. ScanSource is currently generating about 0.03 per unit of risk. If you would invest  30.00  in China Southern Airlines on September 3, 2024 and sell it today you would earn a total of  15.00  from holding China Southern Airlines or generate 50.0% return on investment over 90 days.

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

China Southern Airlines  vs.  ScanSource

China Southern Airlines

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, China Southern reported solid returns over the last few months and may actually be approaching a breakup point.

ScanSource

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ScanSource is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Southern and ScanSource

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

The idea behind China Southern Airlines and ScanSource 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 CEOs Directory module to screen CEOs from public companies around the world.