Correlation Between Wan Hai and China Airlines

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

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

Diversification Opportunities for Wan Hai and China Airlines

0.55

Correlation Coefficient

Wan Hai  China Airlines

Very weak diversification

The 3 months correlation between Wan and China is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Wan Hai Lines and China Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Airlines and Wan Hai 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 Wan Hai Lines are associated (or correlated) with China Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Airlines has no effect on the direction of Wan Hai i.e., Wan Hai and China Airlines go up and down completely randomly.

Pair Corralation between Wan Hai and China Airlines

Assuming the 90 days trading horizon Wan Hai is expected to generate 1.89 times less return on investment than China Airlines. In addition to that, Wan Hai is 2.72 times more volatile than China Airlines. It trades about 0.04 of its total potential returns per unit of risk. China Airlines is currently generating about 0.21 per unit of volatility. If you would invest  2,085  in China Airlines on August 31, 2024 and sell it today you would earn a total of  380.00  from holding China Airlines or generate 18.23% return on investment over 90 days.

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

Wan Hai Lines  vs.  China Airlines

Wan Hai Lines

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Wan Hai Lines are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Wan Hai may actually be approaching a critical reversion point that can send shares even higher in December 2024.

China Airlines

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China Airlines are ranked lower than 16 (%) 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.

Pair Trading with Wan Hai and China Airlines

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

The idea behind Wan Hai Lines and China Airlines 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.