Correlation Between Air France and Cathay Pacific

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

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

Diversification Opportunities for Air France and Cathay Pacific

0.52

Correlation Coefficient

Air France  Cathay Pacific

Very weak diversification

The 3 months correlation between Air and Cathay is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM and Cathay Pacific Airways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Pacific Airways and Air France 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 Air France KLM are associated (or correlated) with Cathay Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Pacific Airways has no effect on the direction of Air France i.e., Air France and Cathay Pacific go up and down completely randomly.

Pair Corralation between Air France and Cathay Pacific

Assuming the 90 days horizon Air France KLM is expected to generate 2.22 times more return on investment than Cathay Pacific. However, Air France is 2.22 times more volatile than Cathay Pacific Airways. It trades about 0.08 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.08 per unit of risk. If you would invest  82.00  in Air France KLM on December 28, 2024 and sell it today you would earn a total of  16.00  from holding Air France KLM or generate 19.51% return on investment over 90 days.

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

Air France KLM  vs.  Cathay Pacific Airways

Air France KLM

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Air France showed solid returns over the last few months and may actually be approaching a breakup point.

Cathay Pacific Airways

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Cathay Pacific may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Air France and Cathay Pacific

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

The idea behind Air France KLM and Cathay Pacific Airways 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.