Correlation Between Natco Pharma and Air China

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

By analyzing existing cross correlation between Natco Pharma Limited and Air China Ltd, you can compare the effects of market volatilities on Natco Pharma and Air China 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 Natco Pharma with a short position of Air China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natco Pharma and Air China.

Diversification Opportunities for Natco Pharma and Air China

-0.48

Correlation Coefficient

Natco Pharma  Air China

Very good diversification

The 3 months correlation between Natco and Air is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Natco Pharma Limited and Air China Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air China and Natco Pharma 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 Natco Pharma Limited are associated (or correlated) with Air China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air China has no effect on the direction of Natco Pharma i.e., Natco Pharma and Air China go up and down completely randomly.

Pair Corralation between Natco Pharma and Air China

Assuming the 90 days trading horizon Natco Pharma Limited is expected to generate 0.73 times more return on investment than Air China. However, Natco Pharma Limited is 1.37 times less risky than Air China. It trades about 0.05 of its potential returns per unit of risk. Air China Ltd is currently generating about 0.0 per unit of risk. If you would invest  68,705  in Natco Pharma Limited on February 5, 2024 and sell it today you would earn a total of  34,705  from holding Natco Pharma Limited or generate 50.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.98%
Values	Daily Returns

Natco Pharma Limited  vs.  Air China Ltd

Natco Pharma Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natco Pharma Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Natco Pharma demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Air China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air China Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Air China is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Natco Pharma and Air China

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

The idea behind Natco Pharma Limited and Air China Ltd 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.