Correlation Between Air New and HYATT HOTELS

Can any of the company-specific risk be diversified away by investing in both Air New and HYATT HOTELS 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 HYATT HOTELS 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 HYATT HOTELS A, you can compare the effects of market volatilities on Air New and HYATT HOTELS 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 HYATT HOTELS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and HYATT HOTELS.

Diversification Opportunities for Air New and HYATT HOTELS

0.48

Correlation Coefficient

Air New  HYATT HOTELS

Very weak diversification

The 3 months correlation between Air and HYATT is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and HYATT HOTELS A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HYATT HOTELS A 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 HYATT HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HYATT HOTELS A has no effect on the direction of Air New i.e., Air New and HYATT HOTELS go up and down completely randomly.

Pair Corralation between Air New and HYATT HOTELS

Assuming the 90 days trading horizon Air New Zealand is expected to under-perform the HYATT HOTELS. But the stock apears to be less risky and, when comparing its historical volatility, Air New Zealand is 1.14 times less risky than HYATT HOTELS. The stock trades about -0.01 of its potential returns per unit of risk. The HYATT HOTELS A is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,287  in HYATT HOTELS A on September 20, 2024 and sell it today you would earn a total of  6,673  from holding HYATT HOTELS A or generate 80.52% return on investment over 90 days.

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

Air New Zealand  vs.  HYATT HOTELS A

Air New Zealand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air New Zealand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Air New is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

HYATT HOTELS A

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HYATT HOTELS A are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HYATT HOTELS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Air New and HYATT HOTELS

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

The idea behind Air New Zealand and HYATT HOTELS A 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.