Correlation Between Copa Holdings and China Eastern

Can any of the company-specific risk be diversified away by investing in both Copa Holdings and China Eastern 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 Copa Holdings and China Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Copa Holdings SA and China Eastern Airlines, you can compare the effects of market volatilities on Copa Holdings and China Eastern 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 Copa Holdings with a short position of China Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Copa Holdings and China Eastern.

Diversification Opportunities for Copa Holdings and China Eastern

0.12

Correlation Coefficient

Copa Holdings  China Eastern

Average diversification

The 3 months correlation between Copa and China is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Copa Holdings SA and China Eastern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Eastern Airlines and Copa Holdings 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 Copa Holdings SA are associated (or correlated) with China Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Eastern Airlines has no effect on the direction of Copa Holdings i.e., Copa Holdings and China Eastern go up and down completely randomly.

Pair Corralation between Copa Holdings and China Eastern

Considering the 90-day investment horizon Copa Holdings SA is expected to generate 0.58 times more return on investment than China Eastern. However, Copa Holdings SA is 1.73 times less risky than China Eastern. It trades about 0.02 of its potential returns per unit of risk. China Eastern Airlines is currently generating about -0.07 per unit of risk. If you would invest  9,317  in Copa Holdings SA on November 29, 2024 and sell it today you would earn a total of  48.00  from holding Copa Holdings SA or generate 0.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Copa Holdings SA  vs.  China Eastern Airlines

Copa Holdings SA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Copa Holdings SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Copa Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

China Eastern Airlines

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Eastern Airlines are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, China Eastern reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Copa Holdings and China Eastern

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

The idea behind Copa Holdings SA and China Eastern Airlines 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.