Correlation Between Cathay Pacific and Air France-KLM

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

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

Diversification Opportunities for Cathay Pacific and Air France-KLM

0.58

Correlation Coefficient

Cathay Pacific  Air France-KLM

Very weak diversification

The 3 months correlation between Cathay and Air is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways 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 Cathay Pacific 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 Cathay Pacific Airways are associated (or correlated) with Air France-KLM. 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 Cathay Pacific i.e., Cathay Pacific and Air France-KLM go up and down completely randomly.

Pair Corralation between Cathay Pacific and Air France-KLM

Assuming the 90 days horizon Cathay Pacific is expected to generate 2.85 times less return on investment than Air France-KLM. But when comparing it to its historical volatility, Cathay Pacific Airways is 2.6 times less risky than Air France-KLM. It trades about 0.08 of its potential returns per unit of risk. Air France KLM SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  855.00  in Air France KLM SA on December 19, 2024 and sell it today you would earn a total of  234.00  from holding Air France KLM SA or generate 27.37% return on investment over 90 days.

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

Cathay Pacific Airways  vs.  Air France KLM SA

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 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Air France-KLM reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Pacific and Air France-KLM

The main advantage of trading using opposite Cathay Pacific and Air France-KLM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Pacific position performs unexpectedly, Air France-KLM 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-KLM will offset losses from the drop in Air France-KLM's long position.

The idea behind Cathay Pacific Airways 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.