Correlation Between Cathay Pacific and Qantas Airways
Can any of the company-specific risk be diversified away by investing in both Cathay Pacific and Qantas Airways 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 Qantas Airways 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 Qantas Airways Limited, you can compare the effects of market volatilities on Cathay Pacific and Qantas Airways 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 Qantas Airways. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Pacific and Qantas Airways.
Diversification Opportunities for Cathay Pacific and Qantas Airways
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cathay and Qantas is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Qantas Airways Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qantas Airways 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 Qantas Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qantas Airways has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Qantas Airways go up and down completely randomly.
Pair Corralation between Cathay Pacific and Qantas Airways
Assuming the 90 days horizon Cathay Pacific is expected to generate 1.68 times less return on investment than Qantas Airways. But when comparing it to its historical volatility, Cathay Pacific Airways is 1.18 times less risky than Qantas Airways. It trades about 0.08 of its potential returns per unit of risk. Qantas Airways Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 351.00 in Qantas Airways Limited on August 29, 2024 and sell it today you would earn a total of 189.00 from holding Qantas Airways Limited or generate 53.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.52% |
| Values | Daily Returns |
Cathay Pacific Airways vs. Qantas Airways Limited
Performance |
| Timeline |
| Cathay Pacific Airways |
| Qantas Airways |
Cathay Pacific and Qantas Airways Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cathay Pacific and Qantas Airways
The main advantage of trading using opposite Cathay Pacific and Qantas Airways positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Pacific position performs unexpectedly, Qantas Airways 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 Qantas Airways will offset losses from the drop in Qantas Airways' long position.| Cathay Pacific vs. Singapore Airlines | Cathay Pacific vs. International Consolidated Airlines | Cathay Pacific vs. Air France KLM | Cathay Pacific vs. Qantas Airways Ltd |
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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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