Correlation Between SPORT LISBOA and Air China

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

By analyzing existing cross correlation between SPORT LISBOA E and Air China Limited, you can compare the effects of market volatilities on SPORT LISBOA 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 SPORT LISBOA with a short position of Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPORT LISBOA and Air China.

Diversification Opportunities for SPORT LISBOA and Air China

-0.27

Correlation Coefficient

SPORT LISBOA  Air China

Very good diversification

The 3 months correlation between SPORT and Air is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding SPORT LISBOA E and Air China Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China Limited and SPORT LISBOA 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 SPORT LISBOA E 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 Limited has no effect on the direction of SPORT LISBOA i.e., SPORT LISBOA and Air China go up and down completely randomly.

Pair Corralation between SPORT LISBOA and Air China

Assuming the 90 days horizon SPORT LISBOA E is expected to generate 0.72 times more return on investment than Air China. However, SPORT LISBOA E is 1.39 times less risky than Air China. It trades about 0.0 of its potential returns per unit of risk. Air China Limited is currently generating about -0.01 per unit of risk. If you would invest  384.00  in SPORT LISBOA E on September 5, 2024 and sell it today you would lose (51.00) from holding SPORT LISBOA E or give up 13.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

SPORT LISBOA E  vs.  Air China Limited

SPORT LISBOA E

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPORT LISBOA E are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SPORT LISBOA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Air China Limited

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Air China Limited are ranked lower than 11 (%) 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 SPORT LISBOA and Air China

The main advantage of trading using opposite SPORT LISBOA and Air China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPORT LISBOA 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 SPORT LISBOA E and Air China Limited 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.