Correlation Between Daily Journal and China Southern

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

By analyzing existing cross correlation between Daily Journal Corp and China Southern Airlines, you can compare the effects of market volatilities on Daily Journal and China Southern 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 Daily Journal with a short position of China Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daily Journal and China Southern.

Diversification Opportunities for Daily Journal and China Southern

-0.14

Correlation Coefficient

Daily Journal  China Southern

Good diversification

The 3 months correlation between Daily and China is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Daily Journal Corp and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines and Daily Journal 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 Daily Journal Corp are associated (or correlated) with China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of Daily Journal i.e., Daily Journal and China Southern go up and down completely randomly.

Pair Corralation between Daily Journal and China Southern

Given the investment horizon of 90 days Daily Journal is expected to generate 1.98 times less return on investment than China Southern. But when comparing it to its historical volatility, Daily Journal Corp is 1.17 times less risky than China Southern. It trades about 0.04 of its potential returns per unit of risk. China Southern Airlines is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,886  in China Southern Airlines on March 22, 2024 and sell it today you would earn a total of  811.00  from holding China Southern Airlines or generate 28.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	34.62%
Values	Daily Returns

Daily Journal Corp  vs.  China Southern Airlines

Daily Journal Corp

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Daily Journal Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Daily Journal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

China Southern Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Southern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, China Southern is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Daily Journal and China Southern

The main advantage of trading using opposite Daily Journal and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daily Journal position performs unexpectedly, China Southern 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 China Southern will offset losses from the drop in China Southern's long position.

The idea behind Daily Journal Corp and China Southern Airlines 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.