Correlation Between ASSOC BR and AIR CHINA

Can any of the company-specific risk be diversified away by investing in both ASSOC BR and AIR CHINA 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 ASSOC BR and AIR CHINA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ASSOC BR FOODS and AIR CHINA LTD, you can compare the effects of market volatilities on ASSOC BR and AIR CHINA 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 ASSOC BR with a short position of AIR CHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASSOC BR and AIR CHINA.

Diversification Opportunities for ASSOC BR and AIR CHINA

0.03

Correlation Coefficient

ASSOC BR  AIR CHINA

Significant diversification

The 3 months correlation between ASSOC and AIR is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding ASSOC BR FOODS and AIR CHINA LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR CHINA LTD and ASSOC BR 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 ASSOC BR FOODS are associated (or correlated) with AIR CHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR CHINA LTD has no effect on the direction of ASSOC BR i.e., ASSOC BR and AIR CHINA go up and down completely randomly.

Pair Corralation between ASSOC BR and AIR CHINA

Assuming the 90 days trading horizon ASSOC BR FOODS is expected to generate 0.53 times more return on investment than AIR CHINA. However, ASSOC BR FOODS is 1.89 times less risky than AIR CHINA. It trades about 0.07 of its potential returns per unit of risk. AIR CHINA LTD is currently generating about -0.01 per unit of risk. If you would invest  1,714  in ASSOC BR FOODS on September 12, 2024 and sell it today you would earn a total of  946.00  from holding ASSOC BR FOODS or generate 55.19% return on investment over 90 days.

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

ASSOC BR FOODS  vs.  AIR CHINA LTD

ASSOC BR FOODS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ASSOC BR FOODS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ASSOC BR is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

AIR CHINA LTD

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 18 (%) 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.

Pair Trading with ASSOC BR and AIR CHINA

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

The idea behind ASSOC BR FOODS and AIR CHINA LTD 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.