Correlation Between Cathay Pacific and Japan Airlines

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

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

Diversification Opportunities for Cathay Pacific and Japan Airlines

-0.91

Correlation Coefficient

Cathay Pacific  Japan Airlines

Pay attention - limited upside

The 3 months correlation between Cathay and Japan is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Japan Airlines Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Airlines and Cathay Pacific 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 Cathay Pacific Airways are associated (or correlated) with Japan Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Airlines has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Japan Airlines go up and down completely randomly.

Pair Corralation between Cathay Pacific and Japan Airlines

If you would invest  1,089  in Japan Airlines Ltd on September 14, 2024 and sell it today you would earn a total of  0.00  from holding Japan Airlines Ltd or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	12.5%
Values	Daily Returns

Cathay Pacific Airways  vs.  Japan Airlines Ltd

Cathay Pacific Airways

Risk-Adjusted Performance

0 of 100

Very Weak

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

Japan Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Airlines Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Japan Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cathay Pacific and Japan Airlines

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

The idea behind Cathay Pacific Airways and Japan Airlines Ltd 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.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.