Correlation Between Cathay Pacific and AirAsia Group

Can any of the company-specific risk be diversified away by investing in both Cathay Pacific and AirAsia Group 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 AirAsia Group 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 AirAsia Group Berhad, you can compare the effects of market volatilities on Cathay Pacific and AirAsia Group 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 AirAsia Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Pacific and AirAsia Group.

Diversification Opportunities for Cathay Pacific and AirAsia Group

0.0

Correlation Coefficient

Cathay Pacific  AirAsia Group

Pay attention - limited upside

The 3 months correlation between Cathay and AirAsia is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and AirAsia Group Berhad in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AirAsia Group Berhad 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 AirAsia Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AirAsia Group Berhad has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and AirAsia Group go up and down completely randomly.

Pair Corralation between Cathay Pacific and AirAsia Group

Assuming the 90 days horizon Cathay Pacific Airways is expected to generate 0.33 times more return on investment than AirAsia Group. However, Cathay Pacific Airways is 3.05 times less risky than AirAsia Group. It trades about 0.18 of its potential returns per unit of risk. AirAsia Group Berhad is currently generating about 0.03 per unit of risk. If you would invest  501.00  in Cathay Pacific Airways on September 13, 2024 and sell it today you would earn a total of  112.00  from holding Cathay Pacific Airways or generate 22.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Cathay Pacific Airways  vs.  AirAsia Group Berhad

Cathay Pacific Airways

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 14 (%) 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.

AirAsia Group Berhad

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AirAsia Group Berhad are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, AirAsia Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cathay Pacific and AirAsia Group

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

The idea behind Cathay Pacific Airways and AirAsia Group Berhad 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.