Correlation Between China Aircraft and Borealis Foods

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Can any of the company-specific risk be diversified away by investing in both China Aircraft and Borealis Foods 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 China Aircraft and Borealis Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Aircraft Leasing and Borealis Foods, you can compare the effects of market volatilities on China Aircraft and Borealis Foods 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 China Aircraft with a short position of Borealis Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Aircraft and Borealis Foods.

Diversification Opportunities for China Aircraft and Borealis Foods

-0.08
  Correlation Coefficient

Good diversification

The 3 months correlation between China and Borealis is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding China Aircraft Leasing and Borealis Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Borealis Foods and China Aircraft 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 China Aircraft Leasing are associated (or correlated) with Borealis Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Borealis Foods has no effect on the direction of China Aircraft i.e., China Aircraft and Borealis Foods go up and down completely randomly.

Pair Corralation between China Aircraft and Borealis Foods

Assuming the 90 days horizon China Aircraft is expected to generate 2.44 times less return on investment than Borealis Foods. But when comparing it to its historical volatility, China Aircraft Leasing is 3.12 times less risky than Borealis Foods. It trades about 0.08 of its potential returns per unit of risk. Borealis Foods is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7.11  in Borealis Foods on September 11, 2024 and sell it today you would earn a total of  0.89  from holding Borealis Foods or generate 12.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy40.08%
ValuesDaily Returns

China Aircraft Leasing  vs.  Borealis Foods

 Performance 
       Timeline  
China Aircraft Leasing 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days China Aircraft Leasing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
Borealis Foods 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Borealis Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Borealis Foods showed solid returns over the last few months and may actually be approaching a breakup point.

China Aircraft and Borealis Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with China Aircraft and Borealis Foods

The main advantage of trading using opposite China Aircraft and Borealis Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Aircraft position performs unexpectedly, Borealis Foods 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 Borealis Foods will offset losses from the drop in Borealis Foods' long position.
The idea behind China Aircraft Leasing and Borealis Foods 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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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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