Correlation Between Air China and British American
Can any of the company-specific risk be diversified away by investing in both Air China and British American 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 British American 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 British American Tobacco, you can compare the effects of market volatilities on Air China and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and British American.
Diversification Opportunities for Air China and British American
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Air and British is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Air China i.e., Air China and British American go up and down completely randomly.
Pair Corralation between Air China and British American
Assuming the 90 days horizon Air China is expected to generate 2.63 times less return on investment than British American. In addition to that, Air China is 2.93 times more volatile than British American Tobacco. It trades about 0.01 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.07 per unit of volatility. If you would invest 2,682 in British American Tobacco on August 31, 2024 and sell it today you would earn a total of 913.00 from holding British American Tobacco or generate 34.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.74% |
| Values | Daily Returns |
Air China Limited vs. British American Tobacco
Performance |
| Timeline |
| Air China Limited |
| British American Tobacco |
Air China and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air China and British American
The main advantage of trading using opposite Air China and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| Air China vs. Harmony Gold Mining | Air China vs. Compugroup Medical SE | Air China vs. MCEWEN MINING INC | Air China vs. DeVry Education Group |
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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