Correlation Between Air New and Cathay Pacific

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

Diversification Opportunities for Air New and Cathay Pacific

0.52

Correlation Coefficient

Air New  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 New Zealand 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 New 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 New Zealand 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 New i.e., Air New and Cathay Pacific go up and down completely randomly.

Pair Corralation between Air New and Cathay Pacific

Assuming the 90 days horizon Air New Zealand is expected to under-perform the Cathay Pacific. In addition to that, Air New is 1.3 times more volatile than Cathay Pacific Airways. It trades about -0.03 of its total potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.06 per unit of volatility. If you would invest  615.00  in Cathay Pacific Airways on December 1, 2024 and sell it today you would earn a total of  37.00  from holding Cathay Pacific Airways or generate 6.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	81.67%
Values	Daily Returns

Air New Zealand  vs.  Cathay Pacific Airways

Air New Zealand

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air New Zealand has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

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 4 (%) 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 New and Cathay Pacific

The main advantage of trading using opposite Air New and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air New 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 New Zealand 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.