Correlation Between AIR CHINA and China Southern
Can any of the company-specific risk be diversified away by investing in both AIR CHINA and China Southern 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 Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AIR CHINA LTD and China Southern Airlines, you can compare the effects of market volatilities on AIR CHINA and China Southern 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 Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIR CHINA and China Southern.
Diversification Opportunities for AIR CHINA and China Southern
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between AIR and China is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding AIR CHINA LTD and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern 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 LTD are associated (or correlated) with China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of AIR CHINA i.e., AIR CHINA and China Southern go up and down completely randomly.
Pair Corralation between AIR CHINA and China Southern
Assuming the 90 days trading horizon AIR CHINA LTD is expected to under-perform the China Southern. In addition to that, AIR CHINA is 1.06 times more volatile than China Southern Airlines. It trades about -0.02 of its total potential returns per unit of risk. China Southern Airlines is currently generating about -0.02 per unit of volatility. If you would invest 67.00 in China Southern Airlines on October 12, 2024 and sell it today you would lose (21.00) from holding China Southern Airlines or give up 31.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
AIR CHINA LTD vs. China Southern Airlines
Performance |
| Timeline |
| AIR CHINA LTD |
| China Southern Airlines |
AIR CHINA and China Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AIR CHINA and China Southern
The main advantage of trading using opposite AIR CHINA and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AIR CHINA position performs unexpectedly, China Southern 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 Southern will offset losses from the drop in China Southern's long position.| AIR CHINA vs. Minerals Technologies | AIR CHINA vs. CNVISION MEDIA | AIR CHINA vs. AAC TECHNOLOGHLDGADR | AIR CHINA vs. Fuji Media Holdings |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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