Correlation Between Copa Holdings and Cathay Pacific

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

Diversification Opportunities for Copa Holdings and Cathay Pacific

0.6

Correlation Coefficient

Copa Holdings  Cathay Pacific

Poor diversification

The 3 months correlation between Copa and Cathay is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Copa Holdings SA 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 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 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 Copa Holdings i.e., Copa Holdings and Cathay Pacific go up and down completely randomly.

Pair Corralation between Copa Holdings and Cathay Pacific

Considering the 90-day investment horizon Copa Holdings is expected to generate 1.47 times less return on investment than Cathay Pacific. But when comparing it to its historical volatility, Copa Holdings SA is 1.31 times less risky than Cathay Pacific. It trades about 0.08 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  614.00  in Cathay Pacific Airways on December 19, 2024 and sell it today you would earn a total of  68.00  from holding Cathay Pacific Airways or generate 11.07% return on investment over 90 days.

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

Copa Holdings SA  vs.  Cathay Pacific Airways

Copa Holdings SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Copa Holdings SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Copa Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Cathay Pacific showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Copa Holdings and Cathay Pacific

The main advantage of trading using opposite Copa Holdings and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Copa Holdings 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 Copa Holdings SA 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.