Correlation Between Air New and Finnair Oyj

Can any of the company-specific risk be diversified away by investing in both Air New and Finnair Oyj 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 New and Finnair Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air New Zealand and Finnair Oyj, you can compare the effects of market volatilities on Air New and Finnair Oyj 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 New with a short position of Finnair Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Finnair Oyj.

Diversification Opportunities for Air New and Finnair Oyj

0.41

Correlation Coefficient

Air New  Finnair Oyj

Very weak diversification

The 3 months correlation between Air and Finnair is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj and Air New 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 New Zealand are associated (or correlated) with Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of Air New i.e., Air New and Finnair Oyj go up and down completely randomly.

Pair Corralation between Air New and Finnair Oyj

Assuming the 90 days horizon Air New Zealand is expected to under-perform the Finnair Oyj. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air New Zealand is 15.95 times less risky than Finnair Oyj. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Finnair Oyj is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  400.00  in Finnair Oyj on March 2, 2024 and sell it today you would lose (90.00) from holding Finnair Oyj or give up 22.5% of portfolio value over 90 days.

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

Air New Zealand  vs.  Finnair Oyj

Air New Zealand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air New Zealand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Air New is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Finnair Oyj

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Finnair Oyj are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Finnair Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air New and Finnair Oyj

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

The idea behind Air New Zealand and Finnair Oyj 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.

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.