Correlation Between Azul SA and Air France

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

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

Diversification Opportunities for Azul SA and Air France

-0.44

Correlation Coefficient

Azul SA  Air France

Very good diversification

The 3 months correlation between Azul and Air is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Azul SA 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 Azul SA 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 Azul SA 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 Azul SA i.e., Azul SA and Air France go up and down completely randomly.

Pair Corralation between Azul SA and Air France

Given the investment horizon of 90 days Azul SA is expected to generate 2.38 times less return on investment than Air France. But when comparing it to its historical volatility, Azul SA is 1.27 times less risky than Air France. It trades about 0.05 of its potential returns per unit of risk. Air France KLM SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  825.00  in Air France KLM SA on December 27, 2024 and sell it today you would earn a total of  264.00  from holding Air France KLM SA or generate 32.0% return on investment over 90 days.

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

Azul SA  vs.  Air France KLM SA

Azul SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Azul SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Azul SA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Air France KLM

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air France KLM SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air France reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Azul SA and Air France

The main advantage of trading using opposite Azul SA and Air France positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azul SA 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 Azul SA 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.