Correlation Between Boston Properties and LATAM Airlines

Can any of the company-specific risk be diversified away by investing in both Boston Properties and LATAM Airlines 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 Boston Properties and LATAM Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Boston Properties and LATAM Airlines Group, you can compare the effects of market volatilities on Boston Properties and LATAM Airlines 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 Boston Properties with a short position of LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Properties and LATAM Airlines.

Diversification Opportunities for Boston Properties and LATAM Airlines

-0.18

Correlation Coefficient

Boston Properties  LATAM Airlines

Good diversification

The 3 months correlation between Boston and LATAM is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Boston Properties and LATAM Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LATAM Airlines Group and Boston Properties 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 Boston Properties are associated (or correlated) with LATAM Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LATAM Airlines Group has no effect on the direction of Boston Properties i.e., Boston Properties and LATAM Airlines go up and down completely randomly.

Pair Corralation between Boston Properties and LATAM Airlines

Considering the 90-day investment horizon Boston Properties is expected to generate 1.18 times more return on investment than LATAM Airlines. However, Boston Properties is 1.18 times more volatile than LATAM Airlines Group. It trades about 0.07 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.06 per unit of risk. If you would invest  6,019  in Boston Properties on October 9, 2024 and sell it today you would earn a total of  1,180  from holding Boston Properties or generate 19.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	69.7%
Values	Daily Returns

Boston Properties  vs.  LATAM Airlines Group

Boston Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Boston Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

LATAM Airlines Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, LATAM Airlines is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Boston Properties and LATAM Airlines

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

The idea behind Boston Properties and LATAM Airlines Group 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.