Correlation Between Allegiant Travel and LATAM Airlines
Can any of the company-specific risk be diversified away by investing in both Allegiant Travel 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 Allegiant Travel and LATAM Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Allegiant Travel and LATAM Airlines Group, you can compare the effects of market volatilities on Allegiant Travel 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 Allegiant Travel with a short position of LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allegiant Travel and LATAM Airlines.
Diversification Opportunities for Allegiant Travel and LATAM Airlines
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Allegiant and LATAM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Allegiant Travel 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 Allegiant Travel 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 Allegiant Travel 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 Allegiant Travel i.e., Allegiant Travel and LATAM Airlines go up and down completely randomly.
Pair Corralation between Allegiant Travel and LATAM Airlines
Given the investment horizon of 90 days Allegiant Travel is expected to generate 2.48 times more return on investment than LATAM Airlines. However, Allegiant Travel is 2.48 times more volatile than LATAM Airlines Group. It trades about 0.09 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.09 per unit of risk. If you would invest 5,567 in Allegiant Travel on September 3, 2024 and sell it today you would earn a total of 2,617 from holding Allegiant Travel or generate 47.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 62.33% |
| Values | Daily Returns |
Allegiant Travel vs. LATAM Airlines Group
Performance |
| Timeline |
| Allegiant Travel |
| LATAM Airlines Group |
Allegiant Travel and LATAM Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allegiant Travel and LATAM Airlines
The main advantage of trading using opposite Allegiant Travel and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allegiant Travel 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.| Allegiant Travel vs. Copa Holdings SA | Allegiant Travel vs. SkyWest | Allegiant Travel vs. Air Transport Services | Allegiant Travel vs. Mesa Air Group |
| LATAM Airlines vs. Allegiant Travel | LATAM Airlines vs. Copa Holdings SA | LATAM Airlines vs. SkyWest | LATAM Airlines vs. Air Transport Services |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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