Correlation Between Air China and Norwegian Air
Can any of the company-specific risk be diversified away by investing in both Air China and Norwegian Air 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 China and Norwegian Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air China Limited and Norwegian Air Shuttle, you can compare the effects of market volatilities on Air China and Norwegian Air 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 China with a short position of Norwegian Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Norwegian Air.
Diversification Opportunities for Air China and Norwegian Air
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Air and Norwegian is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle and Air China 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 China Limited are associated (or correlated) with Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of Air China i.e., Air China and Norwegian Air go up and down completely randomly.
Pair Corralation between Air China and Norwegian Air
Assuming the 90 days horizon Air China Limited is expected to generate 0.33 times more return on investment than Norwegian Air. However, Air China Limited is 3.02 times less risky than Norwegian Air. It trades about 0.18 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about -0.16 per unit of risk. If you would invest 49.00 in Air China Limited on February 3, 2024 and sell it today you would earn a total of 3.00 from holding Air China Limited or generate 6.12% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Air China Limited vs. Norwegian Air Shuttle
Performance |
Timeline |
Air China Limited |
Norwegian Air Shuttle |
Air China and Norwegian Air Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Air China and Norwegian Air
The main advantage of trading using opposite Air China and Norwegian Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, Norwegian Air 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 Norwegian Air will offset losses from the drop in Norwegian Air's long position.Air China vs. Cathay Pacific Airways | Air China vs. Copa Holdings SA | Air China vs. United Airlines Holdings | Air China vs. Delta Air Lines |
Norwegian Air vs. Cathay Pacific Airways | Norwegian Air vs. Copa Holdings SA | Norwegian Air vs. United Airlines Holdings | Norwegian Air vs. Delta Air Lines |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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