Correlation Between Japan Airlines and Cathay Pacific
Can any of the company-specific risk be diversified away by investing in both Japan Airlines and Cathay Pacific 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 Japan Airlines and Cathay Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Airlines Ltd and Cathay Pacific Airways, you can compare the effects of market volatilities on Japan Airlines and Cathay Pacific 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 Japan Airlines with a short position of Cathay Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Airlines and Cathay Pacific.
Diversification Opportunities for Japan Airlines and Cathay Pacific
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Japan and Cathay is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Japan Airlines Ltd and Cathay Pacific Airways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Pacific Airways and Japan 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 Japan Airlines Ltd are associated (or correlated) with Cathay Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Pacific Airways has no effect on the direction of Japan Airlines i.e., Japan Airlines and Cathay Pacific go up and down completely randomly.
Pair Corralation between Japan Airlines and Cathay Pacific
Assuming the 90 days horizon Japan Airlines Ltd is expected to generate 0.76 times more return on investment than Cathay Pacific. However, Japan Airlines Ltd is 1.31 times less risky than Cathay Pacific. It trades about 0.12 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.05 per unit of risk. If you would invest 993.00 in Japan Airlines Ltd on August 29, 2024 and sell it today you would earn a total of 96.00 from holding Japan Airlines Ltd or generate 9.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 13.55% |
| Values | Daily Returns |
Japan Airlines Ltd vs. Cathay Pacific Airways
Performance |
| Timeline |
| Japan Airlines |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Cathay Pacific Airways |
Japan Airlines and Cathay Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Japan Airlines and Cathay Pacific
The main advantage of trading using opposite Japan Airlines and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Airlines position performs unexpectedly, Cathay Pacific 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 Cathay Pacific will offset losses from the drop in Cathay Pacific's long position.| Japan Airlines vs. Qantas Airways Limited | Japan Airlines vs. Cathay Pacific Airways | Japan Airlines vs. Singapore Airlines | Japan Airlines vs. Singapore Airlines |
| Cathay Pacific vs. Singapore Airlines | Cathay Pacific vs. International Consolidated Airlines | Cathay Pacific vs. Air France KLM | Cathay Pacific vs. Qantas Airways Ltd |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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