Correlation Between International Consolidated and Air New
Can any of the company-specific risk be diversified away by investing in both International Consolidated and Air New 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 International Consolidated and Air New into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Consolidated Airlines and Air New Zealand, you can compare the effects of market volatilities on International Consolidated and Air New 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 International Consolidated with a short position of Air New. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and Air New.
Diversification Opportunities for International Consolidated and Air New
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between International and Air is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand and International Consolidated 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 International Consolidated Airlines are associated (or correlated) with Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of International Consolidated i.e., International Consolidated and Air New go up and down completely randomly.
Pair Corralation between International Consolidated and Air New
Assuming the 90 days horizon International Consolidated is expected to generate 1.12 times less return on investment than Air New. But when comparing it to its historical volatility, International Consolidated Airlines is 2.2 times less risky than Air New. It trades about 0.05 of its potential returns per unit of risk. Air New Zealand is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 50.00 in Air New Zealand on August 25, 2024 and sell it today you would lose (19.00) from holding Air New Zealand or give up 38.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 82.26% |
| Values | Daily Returns |
International Consolidated Air vs. Air New Zealand
Performance |
| Timeline |
| International Consolidated |
| Air New Zealand |
International Consolidated and Air New Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Consolidated and Air New
The main advantage of trading using opposite International Consolidated and Air New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated position performs unexpectedly, Air New 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 Air New will offset losses from the drop in Air New's long position.The idea behind International Consolidated Airlines and Air New Zealand pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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