Correlation Between China National and Eastern Air

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

By analyzing existing cross correlation between China National Software and Eastern Air Logistics, you can compare the effects of market volatilities on China National and Eastern Air 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 National with a short position of Eastern Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of China National and Eastern Air.

Diversification Opportunities for China National and Eastern Air

0.46

Correlation Coefficient

China National  Eastern Air

Very weak diversification

The 3 months correlation between China and Eastern is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding China National Software and Eastern Air Logistics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Air Logistics and China National 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 National Software are associated (or correlated) with Eastern Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Air Logistics has no effect on the direction of China National i.e., China National and Eastern Air go up and down completely randomly.

Pair Corralation between China National and Eastern Air

Assuming the 90 days trading horizon China National Software is expected to generate 1.9 times more return on investment than Eastern Air. However, China National is 1.9 times more volatile than Eastern Air Logistics. It trades about 0.23 of its potential returns per unit of risk. Eastern Air Logistics is currently generating about 0.03 per unit of risk. If you would invest  3,303  in China National Software on September 12, 2024 and sell it today you would earn a total of  2,296  from holding China National Software or generate 69.51% return on investment over 90 days.

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

China National Software  vs.  Eastern Air Logistics

China National Software

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in China National Software are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China National sustained solid returns over the last few months and may actually be approaching a breakup point.

Eastern Air Logistics

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Air Logistics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Eastern Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China National and Eastern Air

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

The idea behind China National Software and Eastern Air Logistics 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 Correlations module to find global opportunities by holding instruments from different markets.