Correlation Between Air China and Air France-KLM
Can any of the company-specific risk be diversified away by investing in both Air China and Air France-KLM 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 Air France-KLM 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 Air France KLM SA, you can compare the effects of market volatilities on Air China and Air France-KLM 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 Air France-KLM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Air France-KLM.
Diversification Opportunities for Air China and Air France-KLM
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Air and Air is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited and Air France KLM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM 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 Air France-KLM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Air China i.e., Air China and Air France-KLM go up and down completely randomly.
Pair Corralation between Air China and Air France-KLM
Assuming the 90 days horizon Air China is expected to generate 2.98 times less return on investment than Air France-KLM. In addition to that, Air China is 1.68 times more volatile than Air France KLM SA. It trades about 0.04 of its total potential returns per unit of risk. Air France KLM SA is currently generating about 0.22 per unit of volatility. If you would invest 855.00 in Air France KLM SA on July 22, 2024 and sell it today you would earn a total of 98.00 from holding Air France KLM SA or generate 11.46% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 95.45% |
Values | Daily Returns |
Air China Limited vs. Air France KLM SA
Performance |
Timeline |
Air China Limited |
Air France KLM |
Air China and Air France-KLM Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Air China and Air France-KLM
The main advantage of trading using opposite Air China and Air France-KLM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China position performs unexpectedly, Air France-KLM 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 France-KLM will offset losses from the drop in Air France-KLM's long position.Air China vs. Cebu Air | Air China vs. Finnair Oyj | Air China vs. easyJet plc | Air China vs. Norse Atlantic ASA |
Air France-KLM vs. Cebu Air | Air France-KLM vs. easyJet plc | Air France-KLM vs. Norse Atlantic ASA | Air France-KLM vs. Air China Limited |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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