Correlation Between Hotel Majestic and Air France

Can any of the company-specific risk be diversified away by investing in both Hotel Majestic and Air France 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 Hotel Majestic and Air France into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hotel Majestic Cannes and Air France KLM SA, you can compare the effects of market volatilities on Hotel Majestic and Air France 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 Hotel Majestic with a short position of Air France. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hotel Majestic and Air France.

Diversification Opportunities for Hotel Majestic and Air France

-0.02

Correlation Coefficient

Hotel Majestic  Air France

Good diversification

The 3 months correlation between Hotel and Air is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Hotel Majestic Cannes and Air France KLM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM and Hotel Majestic 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 Hotel Majestic Cannes are associated (or correlated) with Air France. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Hotel Majestic i.e., Hotel Majestic and Air France go up and down completely randomly.

Pair Corralation between Hotel Majestic and Air France

Assuming the 90 days trading horizon Hotel Majestic Cannes is expected to generate 0.55 times more return on investment than Air France. However, Hotel Majestic Cannes is 1.82 times less risky than Air France. It trades about -0.04 of its potential returns per unit of risk. Air France KLM SA is currently generating about -0.03 per unit of risk. If you would invest  545,000  in Hotel Majestic Cannes on September 13, 2024 and sell it today you would lose (25,000) from holding Hotel Majestic Cannes or give up 4.59% of portfolio value over 90 days.

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

Hotel Majestic Cannes  vs.  Air France KLM SA

Hotel Majestic Cannes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hotel Majestic Cannes has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Hotel Majestic is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Air France is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hotel Majestic and Air France

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

The idea behind Hotel Majestic Cannes and Air France KLM SA 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.