Correlation Between PREMIER FOODS and AIR CHINA

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

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

Diversification Opportunities for PREMIER FOODS and AIR CHINA

0.56

Correlation Coefficient

PREMIER FOODS  AIR CHINA

Very weak diversification

The 3 months correlation between PREMIER and AIR is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding PREMIER 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 PREMIER FOODS 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 PREMIER 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 PREMIER FOODS i.e., PREMIER FOODS and AIR CHINA go up and down completely randomly.

Pair Corralation between PREMIER FOODS and AIR CHINA

Assuming the 90 days trading horizon PREMIER FOODS is expected to generate 0.5 times more return on investment than AIR CHINA. However, PREMIER FOODS is 1.99 times less risky than AIR CHINA. It trades about 0.1 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  122.00  in PREMIER FOODS on September 12, 2024 and sell it today you would earn a total of  104.00  from holding PREMIER FOODS or generate 85.25% return on investment over 90 days.

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

PREMIER FOODS  vs.  AIR CHINA LTD

PREMIER FOODS

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PREMIER FOODS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, PREMIER FOODS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 PREMIER FOODS and AIR CHINA

The main advantage of trading using opposite PREMIER FOODS and AIR CHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PREMIER FOODS 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 PREMIER 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.