Correlation Between Cathay Pacific and ANA Holdings

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

Diversification Opportunities for Cathay Pacific and ANA Holdings

0.1

Correlation Coefficient

Cathay Pacific  ANA Holdings

Average diversification

The 3 months correlation between Cathay and ANA is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and ANA Holdings ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ANA Holdings ADR 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 ANA Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ANA Holdings ADR has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and ANA Holdings go up and down completely randomly.

Pair Corralation between Cathay Pacific and ANA Holdings

Assuming the 90 days horizon Cathay Pacific Airways is expected to generate 0.77 times more return on investment than ANA Holdings. However, Cathay Pacific Airways is 1.3 times less risky than ANA Holdings. It trades about 0.08 of its potential returns per unit of risk. ANA Holdings ADR is currently generating about 0.04 per unit of risk. If you would invest  615.00  in Cathay Pacific Airways on December 28, 2024 and sell it today you would earn a total of  57.00  from holding Cathay Pacific Airways or generate 9.27% return on investment over 90 days.

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

Cathay Pacific Airways  vs.  ANA Holdings ADR

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.

ANA Holdings ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ANA Holdings ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, ANA Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cathay Pacific and ANA Holdings

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

The idea behind Cathay Pacific Airways and ANA Holdings ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.