Correlation Between Cathay Pacific and Norse Atlantic

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

Diversification Opportunities for Cathay Pacific and Norse Atlantic

0.32

Correlation Coefficient

Cathay Pacific  Norse Atlantic

Weak diversification

The 3 months correlation between Cathay and Norse is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Norse Atlantic ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norse Atlantic ASA 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 Norse Atlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norse Atlantic ASA has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Norse Atlantic go up and down completely randomly.

Pair Corralation between Cathay Pacific and Norse Atlantic

Assuming the 90 days horizon Cathay Pacific is expected to generate 5.5 times less return on investment than Norse Atlantic. But when comparing it to its historical volatility, Cathay Pacific Airways is 3.53 times less risky than Norse Atlantic. It trades about 0.11 of its potential returns per unit of risk. Norse Atlantic ASA is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Norse Atlantic ASA on December 29, 2024 and sell it today you would earn a total of  25.00  from holding Norse Atlantic ASA or generate 78.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.52%
Values	Daily Returns

Cathay Pacific Airways  vs.  Norse Atlantic ASA

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 8 (%) 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.

Norse Atlantic ASA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norse Atlantic ASA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Norse Atlantic reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Pacific and Norse Atlantic

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

The idea behind Cathay Pacific Airways and Norse Atlantic ASA 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.