Correlation Between American Airlines and LATAM Airlines
Can any of the company-specific risk be diversified away by investing in both American Airlines and LATAM Airlines 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 American Airlines and LATAM Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and LATAM Airlines Group, you can compare the effects of market volatilities on American Airlines and LATAM Airlines 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 American Airlines with a short position of LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and LATAM Airlines.
Diversification Opportunities for American Airlines and LATAM Airlines
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and LATAM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and LATAM Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LATAM Airlines Group and American Airlines 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 American Airlines Group are associated (or correlated) with LATAM Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LATAM Airlines Group has no effect on the direction of American Airlines i.e., American Airlines and LATAM Airlines go up and down completely randomly.
Pair Corralation between American Airlines and LATAM Airlines
Considering the 90-day investment horizon American Airlines is expected to generate 5.09 times less return on investment than LATAM Airlines. In addition to that, American Airlines is 1.57 times more volatile than LATAM Airlines Group. It trades about 0.01 of its total potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.07 per unit of volatility. If you would invest 2,470 in LATAM Airlines Group on August 27, 2024 and sell it today you would earn a total of 216.00 from holding LATAM Airlines Group or generate 8.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 23.32% |
| Values | Daily Returns |
American Airlines Group vs. LATAM Airlines Group
Performance |
| Timeline |
| American Airlines |
| LATAM Airlines Group |
American Airlines and LATAM Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and LATAM Airlines
The main advantage of trading using opposite American Airlines and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines position performs unexpectedly, LATAM Airlines 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 LATAM Airlines will offset losses from the drop in LATAM Airlines' long position.| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
| LATAM Airlines vs. Ryanair Holdings PLC | LATAM Airlines vs. Marine Products | LATAM Airlines vs. Gentex | LATAM Airlines vs. PACCAR Inc |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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