Correlation Between Cathay Pacific and Air New

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

Diversification Opportunities for Cathay Pacific and Air New

-0.44

Correlation Coefficient

Cathay Pacific  Air New

Very good diversification

The 3 months correlation between Cathay and Air is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand 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 Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Air New go up and down completely randomly.

Pair Corralation between Cathay Pacific and Air New

Assuming the 90 days horizon Cathay Pacific Airways is expected to generate 0.37 times more return on investment than Air New. However, Cathay Pacific Airways is 2.71 times less risky than Air New. It trades about 0.18 of its potential returns per unit of risk. Air New Zealand is currently generating about 0.01 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	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cathay Pacific Airways  vs.  Air New Zealand

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.

Air New Zealand

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air New Zealand are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Air New is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cathay Pacific and Air New

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

The idea behind Cathay Pacific Airways and Air New Zealand 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.