Correlation Between Air New and SOGECLAIR

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

Diversification Opportunities for Air New and SOGECLAIR

0.36

Correlation Coefficient

Air New  SOGECLAIR

Weak diversification

The 3 months correlation between Air and SOGECLAIR is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and SOGECLAIR SA INH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOGECLAIR SA INH 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 SOGECLAIR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOGECLAIR SA INH has no effect on the direction of Air New i.e., Air New and SOGECLAIR go up and down completely randomly.

Pair Corralation between Air New and SOGECLAIR

Assuming the 90 days trading horizon Air New Zealand is expected to generate 0.76 times more return on investment than SOGECLAIR. However, Air New Zealand is 1.31 times less risky than SOGECLAIR. It trades about 0.01 of its potential returns per unit of risk. SOGECLAIR SA INH is currently generating about -0.02 per unit of risk. If you would invest  30.00  in Air New Zealand on September 20, 2024 and sell it today you would earn a total of  0.00  from holding Air New Zealand or generate 0.0% return on investment over 90 days.

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

Air New Zealand  vs.  SOGECLAIR SA INH

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.

SOGECLAIR SA INH

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Air New and SOGECLAIR

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

The idea behind Air New Zealand and SOGECLAIR SA INH 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.