Correlation Between Air China and Singapore Airlines

Can any of the company-specific risk be diversified away by investing in both Air China and Singapore 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 Air China and Singapore Airlines 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 Singapore Airlines Limited, you can compare the effects of market volatilities on Air China and Singapore 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 Air China with a short position of Singapore Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Singapore Airlines.

Diversification Opportunities for Air China and Singapore Airlines

0.04

Correlation Coefficient

Air China  Singapore Airlines

Significant diversification

The 3 months correlation between Air and Singapore is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Singapore Airlines Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Airlines 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 Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of Air China i.e., Air China and Singapore Airlines go up and down completely randomly.

Pair Corralation between Air China and Singapore Airlines

Assuming the 90 days horizon Air China Limited is expected to generate 3.92 times more return on investment than Singapore Airlines. However, Air China is 3.92 times more volatile than Singapore Airlines Limited. It trades about 0.22 of its potential returns per unit of risk. Singapore Airlines Limited is currently generating about 0.01 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  29.00  from holding Air China Limited or generate 85.29% return on investment over 90 days.

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

Air China Limited  vs.  Singapore Airlines Limited

Air China Limited

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Limited are ranked lower than 17 (%) 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.

Singapore Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Airlines Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Singapore Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Air China and Singapore Airlines

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

The idea behind Air China Limited and Singapore Airlines Limited 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.