Correlation Between Aurora Cannabis and China Southern

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

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

Diversification Opportunities for Aurora Cannabis and China Southern

-0.52

Correlation Coefficient

Aurora Cannabis  China Southern

Excellent diversification

The 3 months correlation between Aurora and China is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Aurora Cannabis 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 Aurora Cannabis 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 Aurora Cannabis 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 Aurora Cannabis i.e., Aurora Cannabis and China Southern go up and down completely randomly.

Pair Corralation between Aurora Cannabis and China Southern

Considering the 90-day investment horizon Aurora Cannabis is expected to generate 3.87 times more return on investment than China Southern. However, Aurora Cannabis is 3.87 times more volatile than China Southern Airlines. It trades about 0.1 of its potential returns per unit of risk. China Southern Airlines is currently generating about 0.24 per unit of risk. If you would invest  628.00  in Aurora Cannabis on February 22, 2024 and sell it today you would earn a total of  85.00  from holding Aurora Cannabis or generate 13.54% return on investment over 90 days.

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

Aurora Cannabis  vs.  China Southern Airlines

Aurora Cannabis

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Cannabis are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental indicators, Aurora Cannabis sustained solid returns over the last few months and may actually be approaching a breakup point.

China Southern Airlines

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Southern Airlines are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, China Southern may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Aurora Cannabis and China Southern

The main advantage of trading using opposite Aurora Cannabis and China Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aurora Cannabis 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 Aurora Cannabis 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..