Correlation Between LATAM Airlines and Microsoft
Can any of the company-specific risk be diversified away by investing in both LATAM Airlines and Microsoft 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 LATAM Airlines and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LATAM Airlines Group and Microsoft, you can compare the effects of market volatilities on LATAM Airlines and Microsoft 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 LATAM Airlines with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of LATAM Airlines and Microsoft.
Diversification Opportunities for LATAM Airlines and Microsoft
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between LATAM and Microsoft is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and LATAM 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 LATAM Airlines Group are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Microsoft go up and down completely randomly.
Pair Corralation between LATAM Airlines and Microsoft
Assuming the 90 days trading horizon LATAM Airlines is expected to generate 11.25 times less return on investment than Microsoft. In addition to that, LATAM Airlines is 3.76 times more volatile than Microsoft. It trades about 0.01 of its total potential returns per unit of risk. Microsoft is currently generating about 0.5 per unit of volatility. If you would invest 41,557 in Microsoft on October 20, 2024 and sell it today you would earn a total of 243.00 from holding Microsoft or generate 0.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 20.0% |
| Values | Daily Returns |
LATAM Airlines Group vs. Microsoft
Performance |
| Timeline |
| LATAM Airlines Group |
| Microsoft |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
LATAM Airlines and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LATAM Airlines and Microsoft
The main advantage of trading using opposite LATAM Airlines and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LATAM Airlines position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| LATAM Airlines vs. Falabella | LATAM Airlines vs. Cencosud | LATAM Airlines vs. Enjoy SA | LATAM Airlines vs. Sociedad Qumica y |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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