Correlation Between IAUCL and LATAM Airlines
Can any of the company-specific risk be diversified away by investing in both IAUCL 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 IAUCL and LATAM Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IAUCL and LATAM Airlines Group, you can compare the effects of market volatilities on IAUCL 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 IAUCL with a short position of LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of IAUCL and LATAM Airlines.
Diversification Opportunities for IAUCL and LATAM Airlines
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between IAUCL and LATAM is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding IAUCL 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 IAUCL 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 IAUCL 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 IAUCL i.e., IAUCL and LATAM Airlines go up and down completely randomly.
Pair Corralation between IAUCL and LATAM Airlines
Assuming the 90 days trading horizon IAUCL is expected to generate 2.47 times less return on investment than LATAM Airlines. But when comparing it to its historical volatility, IAUCL is 2.2 times less risky than LATAM Airlines. It trades about 0.13 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 683.00 in LATAM Airlines Group on September 19, 2024 and sell it today you would earn a total of 711.00 from holding LATAM Airlines Group or generate 104.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
IAUCL vs. LATAM Airlines Group
Performance |
| Timeline |
| IAUCL |
| LATAM Airlines Group |
IAUCL and LATAM Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IAUCL and LATAM Airlines
The main advantage of trading using opposite IAUCL and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IAUCL 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.The idea behind IAUCL and LATAM Airlines Group 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.| LATAM Airlines vs. Falabella | LATAM Airlines vs. Cencosud | LATAM Airlines vs. Enjoy SA | LATAM Airlines vs. Empresas Copec SA |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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