Correlation Between Air China and Deutsche Lufthansa
Can any of the company-specific risk be diversified away by investing in both Air China and Deutsche Lufthansa 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 Deutsche Lufthansa 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 Deutsche Lufthansa AG, you can compare the effects of market volatilities on Air China and Deutsche Lufthansa 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 Deutsche Lufthansa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Deutsche Lufthansa.
Diversification Opportunities for Air China and Deutsche Lufthansa
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Air and Deutsche is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Deutsche Lufthansa AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Lufthansa 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 Deutsche Lufthansa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Lufthansa has no effect on the direction of Air China i.e., Air China and Deutsche Lufthansa go up and down completely randomly.
Pair Corralation between Air China and Deutsche Lufthansa
Assuming the 90 days horizon Air China Limited is expected to under-perform the Deutsche Lufthansa. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air China Limited is 1.36 times less risky than Deutsche Lufthansa. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Deutsche Lufthansa AG is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 969.00 in Deutsche Lufthansa AG on November 2, 2024 and sell it today you would lose (269.00) from holding Deutsche Lufthansa AG or give up 27.76% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 81.19% |
Values | Daily Returns |
Air China Limited vs. Deutsche Lufthansa AG
Performance |
Timeline |
Air China Limited |
Deutsche Lufthansa |
Air China and Deutsche Lufthansa Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Air China and Deutsche Lufthansa
The main advantage of trading using opposite Air China and Deutsche Lufthansa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, Deutsche Lufthansa 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 Deutsche Lufthansa will offset losses from the drop in Deutsche Lufthansa's long position.Air China vs. Cebu Air | Air China vs. Finnair Oyj | Air China vs. easyJet plc | Air China vs. Norse Atlantic ASA |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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