Correlation Between Air China and Cathay Pacific
Can any of the company-specific risk be diversified away by investing in both Air China and Cathay Pacific 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 Cathay Pacific 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 Cathay Pacific Airways, you can compare the effects of market volatilities on Air China and Cathay Pacific 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 Cathay Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Cathay Pacific.
Diversification Opportunities for Air China and Cathay Pacific
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Air and Cathay is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Cathay Pacific Airways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Pacific Airways 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 Cathay Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Pacific Airways has no effect on the direction of Air China i.e., Air China and Cathay Pacific go up and down completely randomly.
Pair Corralation between Air China and Cathay Pacific
Assuming the 90 days horizon Air China Limited is expected to under-perform the Cathay Pacific. In addition to that, Air China is 1.29 times more volatile than Cathay Pacific Airways. It trades about -0.05 of its total potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.06 per unit of volatility. If you would invest 453.00 in Cathay Pacific Airways on August 25, 2024 and sell it today you would earn a total of 133.00 from holding Cathay Pacific Airways or generate 29.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 59.48% |
| Values | Daily Returns |
Air China Limited vs. Cathay Pacific Airways
Performance |
| Timeline |
| Air China Limited |
| Cathay Pacific Airways |
Air China and Cathay Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air China and Cathay Pacific
The main advantage of trading using opposite Air China and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, Cathay Pacific 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 Cathay Pacific will offset losses from the drop in Cathay Pacific's long position.| Air China vs. Cebu Air | Air China vs. Finnair Oyj | Air China vs. easyJet plc | Air China vs. Norse Atlantic ASA |
| Cathay Pacific vs. Singapore Airlines | Cathay Pacific vs. International Consolidated Airlines | Cathay Pacific vs. Air France KLM | Cathay Pacific vs. Qantas Airways Ltd |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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