Correlation Between Bus Online and Air China

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Can any of the company-specific risk be diversified away by investing in both Bus Online 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 Bus Online and Air China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bus Online Co and Air China Ltd, you can compare the effects of market volatilities on Bus Online 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 Bus Online with a short position of Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bus Online and Air China.

Diversification Opportunities for Bus Online and Air China

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Bus and Air is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bus Online Co and Air China Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China and Bus Online 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 Bus Online Co 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 Bus Online i.e., Bus Online and Air China go up and down completely randomly.

Pair Corralation between Bus Online and Air China

Assuming the 90 days trading horizon Bus Online Co is expected to generate 1.24 times more return on investment than Air China. However, Bus Online is 1.24 times more volatile than Air China Ltd. It trades about 0.16 of its potential returns per unit of risk. Air China Ltd is currently generating about 0.16 per unit of risk. If you would invest  399.00  in Bus Online Co on September 2, 2024 and sell it today you would earn a total of  107.00  from holding Bus Online Co or generate 26.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Bus Online Co  vs.  Air China Ltd

 Performance 
       Timeline  
Bus Online 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Bus Online Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bus Online sustained solid returns over the last few months and may actually be approaching a breakup point.
Air China 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Air China Ltd are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air China sustained solid returns over the last few months and may actually be approaching a breakup point.

Bus Online and Air China Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bus Online and Air China

The main advantage of trading using opposite Bus Online and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bus Online 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.
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The idea behind Bus Online Co 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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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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