Correlation Between Cathay Pacific and Singapore Airlines

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

Diversification Opportunities for Cathay Pacific and Singapore Airlines

-0.51

Correlation Coefficient

Cathay Pacific  Singapore Airlines

Excellent diversification

The 3 months correlation between Cathay and Singapore is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Singapore Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore 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 Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Singapore Airlines go up and down completely randomly.

Pair Corralation between Cathay Pacific and Singapore Airlines

Assuming the 90 days horizon Cathay Pacific is expected to generate 2.62 times less return on investment than Singapore Airlines. But when comparing it to its historical volatility, Cathay Pacific Airways is 2.49 times less risky than Singapore Airlines. It trades about 0.03 of its potential returns per unit of risk. Singapore Airlines is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  403.00  in Singapore Airlines on September 2, 2024 and sell it today you would earn a total of  68.00  from holding Singapore Airlines or generate 16.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	82.19%
Values	Daily Returns

Cathay Pacific Airways  vs.  Singapore Airlines

Cathay Pacific Airways

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 16 (%) 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.

Singapore Airlines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Singapore Airlines 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 Singapore Airlines

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

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