Correlation Between MTI WIRELESS and AIR CHINA

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

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

Diversification Opportunities for MTI WIRELESS and AIR CHINA

-0.21

Correlation Coefficient

MTI WIRELESS  AIR CHINA

Very good diversification

The 3 months correlation between MTI and AIR is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding MTI WIRELESS EDGE 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 MTI WIRELESS 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 MTI WIRELESS EDGE 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 MTI WIRELESS i.e., MTI WIRELESS and AIR CHINA go up and down completely randomly.

Pair Corralation between MTI WIRELESS and AIR CHINA

Assuming the 90 days horizon MTI WIRELESS is expected to generate 10.08 times less return on investment than AIR CHINA. But when comparing it to its historical volatility, MTI WIRELESS EDGE is 1.21 times less risky than AIR CHINA. It trades about 0.03 of its potential returns per unit of risk. AIR CHINA LTD is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  715.00  in AIR CHINA LTD on September 4, 2024 and sell it today you would earn a total of  445.00  from holding AIR CHINA LTD or generate 62.24% return on investment over 90 days.

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

MTI WIRELESS EDGE  vs.  AIR CHINA LTD

MTI WIRELESS EDGE

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MTI WIRELESS EDGE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MTI WIRELESS is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

AIR CHINA LTD

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AIR CHINA LTD are ranked lower than 17 (%) 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 MTI WIRELESS and AIR CHINA

The main advantage of trading using opposite MTI WIRELESS and AIR CHINA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MTI WIRELESS 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 MTI WIRELESS EDGE 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.