Correlation Between Air China and American Airlines
Can any of the company-specific risk be diversified away by investing in both Air China and American Airlines 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 Air China and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air China Limited and American Airlines Group, you can compare the effects of market volatilities on Air China and American Airlines 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 Air China with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and American Airlines.
Diversification Opportunities for Air China and American Airlines
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Air and American is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Air China 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 Air China Limited are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Air China i.e., Air China and American Airlines go up and down completely randomly.
Pair Corralation between Air China and American Airlines
Assuming the 90 days horizon Air China Limited is expected to generate 1.36 times more return on investment than American Airlines. However, Air China is 1.36 times more volatile than American Airlines Group. It trades about 0.0 of its potential returns per unit of risk. American Airlines Group is currently generating about -0.1 per unit of risk. If you would invest 59.00 in Air China Limited on November 6, 2024 and sell it today you would lose (1.00) from holding Air China Limited or give up 1.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air China Limited vs. American Airlines Group
Performance |
| Timeline |
| Air China Limited |
| American Airlines |
Air China and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air China and American Airlines
The main advantage of trading using opposite Air China and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Air China vs. LIFEWAY FOODS | Air China vs. Chunghwa Telecom Co | Air China vs. CN MODERN DAIRY | Air China vs. United Natural Foods |
| American Airlines vs. FORTRESS BIOTECHPRFA 25 | American Airlines vs. HELIOS TECHS INC | American Airlines vs. US Physical Therapy | American Airlines vs. Kingdee International Software |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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