Correlation Between Air Asia and Information Technology

Can any of the company-specific risk be diversified away by investing in both Air Asia and Information Technology 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 Air Asia and Information Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Asia Co and Information Technology Total, you can compare the effects of market volatilities on Air Asia and Information Technology 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 Air Asia with a short position of Information Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Asia and Information Technology.

Diversification Opportunities for Air Asia and Information Technology

-0.27

Correlation Coefficient

Air Asia  Information Technology

Very good diversification

The 3 months correlation between Air and Information is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Air Asia Co and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology and Air Asia 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 Air Asia Co are associated (or correlated) with Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Air Asia i.e., Air Asia and Information Technology go up and down completely randomly.

Pair Corralation between Air Asia and Information Technology

Assuming the 90 days trading horizon Air Asia is expected to generate 4.25 times less return on investment than Information Technology. But when comparing it to its historical volatility, Air Asia Co is 1.06 times less risky than Information Technology. It trades about 0.02 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,340  in Information Technology Total on September 12, 2024 and sell it today you would earn a total of  430.00  from holding Information Technology Total or generate 9.91% return on investment over 90 days.

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

Air Asia Co  vs.  Information Technology Total

Air Asia

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air Asia Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Air Asia is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Information Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Air Asia and Information Technology

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

The idea behind Air Asia Co and Information Technology Total 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.