Correlation Between AirAsia Group and China Southern
Can any of the company-specific risk be diversified away by investing in both AirAsia Group 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 AirAsia Group and China Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AirAsia Group Berhad and China Southern Airlines, you can compare the effects of market volatilities on AirAsia Group 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 AirAsia Group with a short position of China Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of AirAsia Group and China Southern.
Diversification Opportunities for AirAsia Group and China Southern
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between AirAsia and China is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding AirAsia Group Berhad 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 AirAsia Group 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 AirAsia Group Berhad 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 AirAsia Group i.e., AirAsia Group and China Southern go up and down completely randomly.
Pair Corralation between AirAsia Group and China Southern
Assuming the 90 days horizon AirAsia Group Berhad is expected to under-perform the China Southern. In addition to that, AirAsia Group is 2.37 times more volatile than China Southern Airlines. It trades about -0.05 of its total potential returns per unit of risk. China Southern Airlines is currently generating about 0.29 per unit of volatility. If you would invest 40.00 in China Southern Airlines on August 28, 2024 and sell it today you would earn a total of 6.00 from holding China Southern Airlines or generate 15.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AirAsia Group Berhad vs. China Southern Airlines
Performance |
| Timeline |
| AirAsia Group Berhad |
| China Southern Airlines |
AirAsia Group and China Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AirAsia Group and China Southern
The main advantage of trading using opposite AirAsia Group and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AirAsia Group 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.| AirAsia Group vs. Air New Zealand | AirAsia Group vs. ANA Holdings ADR | AirAsia Group vs. Cebu Air | AirAsia Group vs. Air France KLM SA |
| China Southern vs. Cebu Air | China Southern vs. Finnair Oyj | China Southern vs. easyJet plc | China Southern vs. Norse Atlantic ASA |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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