Correlation Between China Southern and US Bancorp
Can any of the company-specific risk be diversified away by investing in both China Southern and US Bancorp 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 China Southern and US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Southern Airlines and US Bancorp PERP, you can compare the effects of market volatilities on China Southern and US Bancorp 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 China Southern with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Southern and US Bancorp.
Diversification Opportunities for China Southern and US Bancorp
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between China and USB-PA is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and US Bancorp PERP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp PERP and China Southern 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 China Southern Airlines are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp PERP has no effect on the direction of China Southern i.e., China Southern and US Bancorp go up and down completely randomly.
Pair Corralation between China Southern and US Bancorp
Assuming the 90 days horizon China Southern Airlines is expected to under-perform the US Bancorp. In addition to that, China Southern is 5.58 times more volatile than US Bancorp PERP. It trades about -0.17 of its total potential returns per unit of risk. US Bancorp PERP is currently generating about 0.02 per unit of volatility. If you would invest 87,032 in US Bancorp PERP on January 20, 2024 and sell it today you would earn a total of 368.00 from holding US Bancorp PERP or generate 0.42% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
China Southern Airlines vs. US Bancorp PERP
Performance |
Timeline |
China Southern Airlines |
US Bancorp PERP |
China Southern and US Bancorp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with China Southern and US Bancorp
The main advantage of trading using opposite China Southern and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Southern position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.China Southern vs. Copa Holdings SA | China Southern vs. United Airlines Holdings | China Southern vs. Delta Air Lines | China Southern vs. SkyWest |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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