Correlation Between Cathay Pacific and Air France-KLM
Can any of the company-specific risk be diversified away by investing in both Cathay Pacific and Air France-KLM 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 Cathay Pacific and Air France-KLM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Pacific Airways and Air France KLM SA, you can compare the effects of market volatilities on Cathay Pacific and Air France-KLM 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 Cathay Pacific with a short position of Air France-KLM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Pacific and Air France-KLM.
Diversification Opportunities for Cathay Pacific and Air France-KLM
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Cathay and Air is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Air France KLM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM and Cathay Pacific 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 Cathay Pacific Airways are associated (or correlated) with Air France-KLM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Air France-KLM go up and down completely randomly.
Pair Corralation between Cathay Pacific and Air France-KLM
Assuming the 90 days horizon Cathay Pacific Airways is expected to generate 0.63 times more return on investment than Air France-KLM. However, Cathay Pacific Airways is 1.58 times less risky than Air France-KLM. It trades about -0.03 of its potential returns per unit of risk. Air France KLM SA is currently generating about -0.07 per unit of risk. If you would invest 99.00 in Cathay Pacific Airways on August 25, 2024 and sell it today you would lose (8.00) from holding Cathay Pacific Airways or give up 8.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 68.95% |
| Values | Daily Returns |
Cathay Pacific Airways vs. Air France KLM SA
Performance |
| Timeline |
| Cathay Pacific Airways |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
| Air France KLM |
Cathay Pacific and Air France-KLM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Pacific and Air France-KLM
The main advantage of trading using opposite Cathay Pacific and Air France-KLM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Pacific position performs unexpectedly, Air France-KLM 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 France-KLM will offset losses from the drop in Air France-KLM's long position.| Cathay Pacific vs. Finnair Oyj | Cathay Pacific vs. easyJet plc | Cathay Pacific vs. Norse Atlantic ASA | Cathay Pacific vs. Air New Zealand |
| Air France-KLM vs. Cebu Air | Air France-KLM vs. easyJet plc | Air France-KLM vs. Norse Atlantic ASA | Air France-KLM vs. Air China Limited |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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