Correlation Between Air China and China Eastern
Can any of the company-specific risk be diversified away by investing in both Air China and China Eastern 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 China Eastern 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 China Eastern Airlines, you can compare the effects of market volatilities on Air China and China Eastern 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 China Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and China Eastern.
Diversification Opportunities for Air China and China Eastern
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Air and China is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern 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 China Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of Air China i.e., Air China and China Eastern go up and down completely randomly.
Pair Corralation between Air China and China Eastern
Assuming the 90 days horizon Air China Limited is expected to under-perform the China Eastern. In addition to that, Air China is 1.11 times more volatile than China Eastern Airlines. It trades about -0.12 of its total potential returns per unit of risk. China Eastern Airlines is currently generating about 0.07 per unit of volatility. If you would invest 31.00 in China Eastern Airlines on October 25, 2024 and sell it today you would earn a total of 1.00 from holding China Eastern Airlines or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air China Limited vs. China Eastern Airlines
Performance |
| Timeline |
| Air China Limited |
| China Eastern Airlines |
Air China and China Eastern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air China and China Eastern
The main advantage of trading using opposite Air China and China Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, China Eastern 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 China Eastern will offset losses from the drop in China Eastern's long position.| Air China vs. PARKEN Sport Entertainment | Air China vs. VIENNA INSURANCE GR | Air China vs. Sabre Insurance Group | Air China vs. Kaiser Aluminum |
| China Eastern vs. MARKET VECTR RETAIL | China Eastern vs. KENEDIX OFFICE INV | China Eastern vs. Caseys General Stores | China Eastern vs. HOME DEPOT |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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