Correlation Between Alfa Financial and Air China

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

Diversification Opportunities for Alfa Financial and Air China

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Alfa and Air is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software 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 Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Air China go up and down completely randomly.

Pair Corralation between Alfa Financial and Air China

Assuming the 90 days trading horizon Alfa Financial is expected to generate 4.47 times less return on investment than Air China. But when comparing it to its historical volatility, Alfa Financial Software is 1.45 times less risky than Air China. It trades about 0.07 of its potential returns per unit of risk. Air China Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  46.00  in Air China Limited on September 23, 2024 and sell it today you would earn a total of  15.00  from holding Air China Limited or generate 32.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Alfa Financial Software  vs.  Air China Limited

 Performance 
       Timeline  
Alfa Financial Software 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Air China Limited 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Air China Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air China reported solid returns over the last few months and may actually be approaching a breakup point.

Alfa Financial and Air China Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Alfa Financial and Air China

The main advantage of trading using opposite Alfa Financial and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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.
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..

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