Correlation Between Air China and Controladora Vuela

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

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

Diversification Opportunities for Air China and Controladora Vuela

0.82

Correlation Coefficient

Air China  Controladora Vuela

Very poor diversification

The 3 months correlation between Air and Controladora is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Controladora Vuela Compaa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Controladora Vuela Compaa and Air China 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 China Limited are associated (or correlated) with Controladora Vuela. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Controladora Vuela Compaa has no effect on the direction of Air China i.e., Air China and Controladora Vuela go up and down completely randomly.

Pair Corralation between Air China and Controladora Vuela

Assuming the 90 days horizon Air China Limited is expected to generate 2.28 times more return on investment than Controladora Vuela. However, Air China is 2.28 times more volatile than Controladora Vuela Compaa. It trades about 0.21 of its potential returns per unit of risk. Controladora Vuela Compaa is currently generating about 0.21 per unit of risk. If you would invest  34.00  in Air China Limited on September 23, 2024 and sell it today you would earn a total of  27.00  from holding Air China Limited or generate 79.41% return on investment over 90 days.

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

Air China Limited  vs.  Controladora Vuela Compaa

Air China Limited

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air China reported solid returns over the last few months and may actually be approaching a breakup point.

Controladora Vuela Compaa

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Controladora Vuela Compaa are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Controladora Vuela reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air China and Controladora Vuela

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

The idea behind Air China Limited and Controladora Vuela Compaa 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.