Correlation Between Hainan Airlines and Yunnan Aluminium

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

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

Diversification Opportunities for Hainan Airlines and Yunnan Aluminium

0.3

Correlation Coefficient

Hainan Airlines  Yunnan Aluminium

Weak diversification

The 3 months correlation between Hainan and Yunnan is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Hainan Airlines Co and Yunnan Aluminium Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yunnan Aluminium and Hainan 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 Hainan Airlines Co are associated (or correlated) with Yunnan Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yunnan Aluminium has no effect on the direction of Hainan Airlines i.e., Hainan Airlines and Yunnan Aluminium go up and down completely randomly.

Pair Corralation between Hainan Airlines and Yunnan Aluminium

Assuming the 90 days trading horizon Hainan Airlines is expected to generate 2.33 times less return on investment than Yunnan Aluminium. In addition to that, Hainan Airlines is 1.61 times more volatile than Yunnan Aluminium Co. It trades about 0.01 of its total potential returns per unit of risk. Yunnan Aluminium Co is currently generating about 0.06 per unit of volatility. If you would invest  1,348  in Yunnan Aluminium Co on September 29, 2024 and sell it today you would earn a total of  27.00  from holding Yunnan Aluminium Co or generate 2.0% return on investment over 90 days.

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

Hainan Airlines Co  vs.  Yunnan Aluminium Co

Hainan Airlines

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Airlines Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Airlines sustained solid returns over the last few months and may actually be approaching a breakup point.

Yunnan Aluminium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yunnan Aluminium Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Yunnan Aluminium is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hainan Airlines and Yunnan Aluminium

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

The idea behind Hainan Airlines Co and Yunnan Aluminium Co 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.