Correlation Between China Southern and Air China
Can any of the company-specific risk be diversified away by investing in both China Southern and Air China 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 Southern and Air China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Southern Airlines and Air China Limited, you can compare the effects of market volatilities on China Southern and Air China 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 Southern with a short position of Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Southern and Air China.
Diversification Opportunities for China Southern and Air China
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Air is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited and China Southern 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 Southern Airlines are associated (or correlated) with Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China Limited has no effect on the direction of China Southern i.e., China Southern and Air China go up and down completely randomly.
Pair Corralation between China Southern and Air China
Assuming the 90 days horizon China Southern Airlines is expected to generate 1.67 times more return on investment than Air China. However, China Southern is 1.67 times more volatile than Air China Limited. It trades about 0.0 of its potential returns per unit of risk. Air China Limited is currently generating about -0.03 per unit of risk. If you would invest 65.00 in China Southern Airlines on November 2, 2024 and sell it today you would lose (19.00) from holding China Southern Airlines or give up 29.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 66.53% |
| Values | Daily Returns |
China Southern Airlines vs. Air China Limited
Performance |
| Timeline |
| China Southern Airlines |
| Air China Limited |
China Southern and Air China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Southern and Air China
The main advantage of trading using opposite China Southern and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Southern position performs unexpectedly, Air China 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 China will offset losses from the drop in Air China's long position.| China Southern vs. Cebu Air | China Southern vs. Finnair Oyj | China Southern vs. easyJet plc | China Southern vs. Norse Atlantic ASA |
| Air China vs. Cebu Air | Air China vs. Finnair Oyj | Air China vs. easyJet plc | Air China 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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