Correlation Between Air New and Australian United

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

By analyzing existing cross correlation between Air New Zealand and Australian United Investment, you can compare the effects of market volatilities on Air New and Australian United 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 New with a short position of Australian United. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Australian United.

Diversification Opportunities for Air New and Australian United

-0.5

Correlation Coefficient

Air New  Australian United

Very good diversification

The 3 months correlation between Air and Australian is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Australian United Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian United and Air New 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 New Zealand are associated (or correlated) with Australian United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian United has no effect on the direction of Air New i.e., Air New and Australian United go up and down completely randomly.

Pair Corralation between Air New and Australian United

Assuming the 90 days trading horizon Air New Zealand is expected to under-perform the Australian United. In addition to that, Air New is 1.95 times more volatile than Australian United Investment. It trades about -0.03 of its total potential returns per unit of risk. Australian United Investment is currently generating about 0.05 per unit of volatility. If you would invest  928.00  in Australian United Investment on September 14, 2024 and sell it today you would earn a total of  140.00  from holding Australian United Investment or generate 15.09% return on investment over 90 days.

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

Air New Zealand  vs.  Australian United Investment

Air New Zealand

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Air New is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Australian United

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Australian United Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, Australian United is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Air New and Australian United

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

The idea behind Air New Zealand and Australian United Investment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.