Correlation Between Hong Leong and AirAsia X
Can any of the company-specific risk be diversified away by investing in both Hong Leong and AirAsia X 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 Hong Leong and AirAsia X into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hong Leong Bank and AirAsia X Bhd, you can compare the effects of market volatilities on Hong Leong and AirAsia X 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 Hong Leong with a short position of AirAsia X. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Leong and AirAsia X.
Diversification Opportunities for Hong Leong and AirAsia X
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Hong and AirAsia is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Hong Leong Bank and AirAsia X Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AirAsia X Bhd and Hong Leong 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 Hong Leong Bank are associated (or correlated) with AirAsia X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AirAsia X Bhd has no effect on the direction of Hong Leong i.e., Hong Leong and AirAsia X go up and down completely randomly.
Pair Corralation between Hong Leong and AirAsia X
Assuming the 90 days trading horizon Hong Leong is expected to generate 22.75 times less return on investment than AirAsia X. But when comparing it to its historical volatility, Hong Leong Bank is 5.49 times less risky than AirAsia X. It trades about 0.02 of its potential returns per unit of risk. AirAsia X Bhd is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 49.00 in AirAsia X Bhd on September 16, 2024 and sell it today you would earn a total of 140.00 from holding AirAsia X Bhd or generate 285.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hong Leong Bank vs. AirAsia X Bhd
Performance |
| Timeline |
| Hong Leong Bank |
| AirAsia X Bhd |
Hong Leong and AirAsia X Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hong Leong and AirAsia X
The main advantage of trading using opposite Hong Leong and AirAsia X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Leong position performs unexpectedly, AirAsia X 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 AirAsia X will offset losses from the drop in AirAsia X's long position.The idea behind Hong Leong Bank and AirAsia X Bhd 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.| AirAsia X vs. Public Packages Holdings | AirAsia X vs. Binasat Communications Bhd | AirAsia X vs. Awanbiru Technology Bhd | AirAsia X vs. Sports Toto Berhad |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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