Correlation Between China Airlines and Aero Win

Can any of the company-specific risk be diversified away by investing in both China Airlines and Aero Win 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 Airlines and Aero Win into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Airlines and Aero Win Technology, you can compare the effects of market volatilities on China Airlines and Aero Win 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 Airlines with a short position of Aero Win. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Airlines and Aero Win.

Diversification Opportunities for China Airlines and Aero Win

0.54

Correlation Coefficient

China Airlines  Aero Win

Very weak diversification

The 3 months correlation between China and Aero is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding China Airlines and Aero Win Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aero Win Technology and China Airlines 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 Airlines are associated (or correlated) with Aero Win. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aero Win Technology has no effect on the direction of China Airlines i.e., China Airlines and Aero Win go up and down completely randomly.

Pair Corralation between China Airlines and Aero Win

Assuming the 90 days trading horizon China Airlines is expected to generate 0.86 times more return on investment than Aero Win. However, China Airlines is 1.16 times less risky than Aero Win. It trades about 0.48 of its potential returns per unit of risk. Aero Win Technology is currently generating about 0.13 per unit of risk. If you would invest  2,265  in China Airlines on September 4, 2024 and sell it today you would earn a total of  410.00  from holding China Airlines or generate 18.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

China Airlines  vs.  Aero Win Technology

China Airlines

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, China Airlines showed solid returns over the last few months and may actually be approaching a breakup point.

Aero Win Technology

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with China Airlines and Aero Win

The main advantage of trading using opposite China Airlines and Aero Win positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Airlines position performs unexpectedly, Aero Win 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 Aero Win will offset losses from the drop in Aero Win's long position.

The idea behind China Airlines and Aero Win Technology 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.