Correlation Between Air France-KLM and Azul SA

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

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

Diversification Opportunities for Air France-KLM and Azul SA

0.45

Correlation Coefficient

Air France-KLM  Azul SA

Very weak diversification

The 3 months correlation between Air and Azul is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM SA and Azul SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azul SA and Air France-KLM 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 SA are associated (or correlated) with Azul SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azul SA has no effect on the direction of Air France-KLM i.e., Air France-KLM and Azul SA go up and down completely randomly.

Pair Corralation between Air France-KLM and Azul SA

Assuming the 90 days horizon Air France KLM SA is expected to under-perform the Azul SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air France KLM SA is 2.53 times less risky than Azul SA. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Azul SA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  254.00  in Azul SA on September 3, 2024 and sell it today you would lose (19.00) from holding Azul SA or give up 7.48% of portfolio value over 90 days.

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

Air France KLM SA  vs.  Azul SA

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 nearly stable basic indicators, Air France-KLM is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Azul SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Azul SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Azul SA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Air France-KLM and Azul SA

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

The idea behind Air France KLM SA and Azul 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.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.