Correlation Between Air France-KLM and Cathay Pacific

Can any of the company-specific risk be diversified away by investing in both Air France-KLM 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 Air France-KLM and Cathay Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air France KLM SA and Cathay Pacific Airways, you can compare the effects of market volatilities on Air France-KLM 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 Air France-KLM with a short position of Cathay Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air France-KLM and Cathay Pacific.

Diversification Opportunities for Air France-KLM and Cathay Pacific

-0.45

Correlation Coefficient

Air France-KLM  Cathay Pacific

Very good diversification

The 3 months correlation between Air and Cathay is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM SA 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 Air France-KLM 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 Air France KLM SA 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 Air France-KLM i.e., Air France-KLM and Cathay Pacific go up and down completely randomly.

Pair Corralation between Air France-KLM and Cathay Pacific

Assuming the 90 days horizon Air France KLM SA is expected to under-perform the Cathay Pacific. In addition to that, Air France-KLM is 1.48 times more volatile than Cathay Pacific Airways. It trades about -0.03 of its total potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.2 per unit of volatility. If you would invest  497.00  in Cathay Pacific Airways on September 5, 2024 and sell it today you would earn a total of  118.00  from holding Cathay Pacific Airways or generate 23.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Air France KLM SA  vs.  Cathay Pacific Airways

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Air France-KLM is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cathay Pacific Airways

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Cathay Pacific showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air France-KLM and Cathay Pacific

The main advantage of trading using opposite Air France-KLM and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air France-KLM 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.

The idea behind Air France KLM SA and Cathay Pacific Airways 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.

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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 CEOs Directory module to screen CEOs from public companies around the world.