Correlation Between Telstra and Air New
Can any of the company-specific risk be diversified away by investing in both Telstra 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 Telstra and Air New into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Telstra and Air New Zealand, you can compare the effects of market volatilities on Telstra 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 Telstra with a short position of Air New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telstra and Air New.
Diversification Opportunities for Telstra and Air New
Very poor diversification
The 3 months correlation between Telstra and Air is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Telstra 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 Telstra 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 Telstra 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 Telstra i.e., Telstra and Air New go up and down completely randomly.
Pair Corralation between Telstra and Air New
Assuming the 90 days trading horizon Telstra is expected to generate 14.91 times less return on investment than Air New. But when comparing it to its historical volatility, Telstra is 3.27 times less risky than Air New. It trades about 0.07 of its potential returns per unit of risk. Air New Zealand is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 50.00 in Air New Zealand on October 20, 2024 and sell it today you would earn a total of 6.00 from holding Air New Zealand or generate 12.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Telstra vs. Air New Zealand
Performance |
| Timeline |
| Telstra |
| Air New Zealand |
Telstra and Air New Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Telstra and Air New
The main advantage of trading using opposite Telstra and Air New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telstra 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.| Telstra vs. Evolution Mining | Telstra vs. Perseus Mining | Telstra vs. Duketon Mining | Telstra vs. Truscott Mining Corp |
| Air New vs. Queste Communications | Air New vs. Macquarie Technology Group | Air New vs. National Storage REIT | Air New vs. Collins Foods |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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