Correlation Between Copa Holdings and China Southern

Can any of the company-specific risk be diversified away by investing in both Copa Holdings and China Southern 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 Southern 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 Southern Airlines, you can compare the effects of market volatilities on Copa Holdings and China Southern 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 Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Copa Holdings and China Southern.

Diversification Opportunities for Copa Holdings and China Southern

-0.72

Correlation Coefficient

Copa Holdings  China Southern

Pay attention - limited upside

The 3 months correlation between Copa and China is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Copa Holdings SA and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern 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 Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of Copa Holdings i.e., Copa Holdings and China Southern go up and down completely randomly.

Pair Corralation between Copa Holdings and China Southern

Considering the 90-day investment horizon Copa Holdings is expected to generate 1.61 times less return on investment than China Southern. But when comparing it to its historical volatility, Copa Holdings SA is 2.22 times less risky than China Southern. It trades about 0.02 of its potential returns per unit of risk. China Southern Airlines is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  63.00  in China Southern Airlines on October 3, 2024 and sell it today you would lose (8.00) from holding China Southern Airlines or give up 12.7% of portfolio value over 90 days.

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

Copa Holdings SA  vs.  China Southern Airlines

Copa Holdings SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Copa Holdings SA has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Southern Airlines

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Copa Holdings and China Southern

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

The idea behind Copa Holdings SA and China Southern 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.