Correlation Between Copa Holdings and American Airlines

Can any of the company-specific risk be diversified away by investing in both Copa Holdings and American 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 Copa Holdings and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Copa Holdings SA and American Airlines Group, you can compare the effects of market volatilities on Copa Holdings and American 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 Copa Holdings with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Copa Holdings and American Airlines.

Diversification Opportunities for Copa Holdings and American Airlines

0.76

Correlation Coefficient

Copa Holdings  American Airlines

Poor diversification

The 3 months correlation between Copa and American is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Copa Holdings SA and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Copa Holdings 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 Copa Holdings SA are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Copa Holdings i.e., Copa Holdings and American Airlines go up and down completely randomly.

Pair Corralation between Copa Holdings and American Airlines

Considering the 90-day investment horizon Copa Holdings is expected to generate 6.82 times less return on investment than American Airlines. But when comparing it to its historical volatility, Copa Holdings SA is 1.03 times less risky than American Airlines. It trades about 0.03 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,062  in American Airlines Group on August 30, 2024 and sell it today you would earn a total of  402.00  from holding American Airlines Group or generate 37.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Copa Holdings SA  vs.  American Airlines Group

Copa Holdings SA

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Copa Holdings SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Copa Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

American Airlines

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Copa Holdings and American Airlines

The main advantage of trading using opposite Copa Holdings and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Copa Holdings position performs unexpectedly, American 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 American Airlines will offset losses from the drop in American Airlines' long position.

The idea behind Copa Holdings SA and American 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.