Correlation Between China Southern and ANA Holdings

Can any of the company-specific risk be diversified away by investing in both China Southern and ANA Holdings 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 China Southern and ANA Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Southern Airlines and ANA Holdings ADR, you can compare the effects of market volatilities on China Southern and ANA Holdings 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 China Southern with a short position of ANA Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Southern and ANA Holdings.

Diversification Opportunities for China Southern and ANA Holdings

-0.52

Correlation Coefficient

China Southern  ANA Holdings

Excellent diversification

The 3 months correlation between China and ANA is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and ANA Holdings ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ANA Holdings ADR and China Southern 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 China Southern Airlines are associated (or correlated) with ANA Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ANA Holdings ADR has no effect on the direction of China Southern i.e., China Southern and ANA Holdings go up and down completely randomly.

Pair Corralation between China Southern and ANA Holdings

Assuming the 90 days horizon China Southern Airlines is expected to generate 2.23 times more return on investment than ANA Holdings. However, China Southern is 2.23 times more volatile than ANA Holdings ADR. It trades about 0.07 of its potential returns per unit of risk. ANA Holdings ADR is currently generating about 0.02 per unit of risk. If you would invest  39.00  in China Southern Airlines on September 4, 2024 and sell it today you would earn a total of  6.00  from holding China Southern Airlines or generate 15.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

China Southern Airlines  vs.  ANA Holdings ADR

China Southern Airlines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, China Southern reported solid returns over the last few months and may actually be approaching a breakup point.

ANA Holdings ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ANA Holdings ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, ANA Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Southern and ANA Holdings

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

The idea behind China Southern Airlines and ANA Holdings ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.