Correlation Between Cathay Pacific and Qantas Airways

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

Diversification Opportunities for Cathay Pacific and Qantas Airways

0.77

Correlation Coefficient

Cathay Pacific  Qantas Airways

Poor diversification

The 3 months correlation between Cathay and Qantas is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and Qantas Airways Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qantas Airways 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 Qantas Airways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qantas Airways has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and Qantas Airways go up and down completely randomly.

Pair Corralation between Cathay Pacific and Qantas Airways

Assuming the 90 days horizon Cathay Pacific is expected to generate 1.05 times less return on investment than Qantas Airways. In addition to that, Cathay Pacific is 1.05 times more volatile than Qantas Airways Ltd. It trades about 0.18 of its total potential returns per unit of risk. Qantas Airways Ltd is currently generating about 0.2 per unit of volatility. If you would invest  2,326  in Qantas Airways Ltd on September 13, 2024 and sell it today you would earn a total of  550.00  from holding Qantas Airways Ltd or generate 23.65% return on investment over 90 days.

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

Cathay Pacific Airways  vs.  Qantas Airways Ltd

Cathay Pacific Airways

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 14 (%) 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.

Qantas Airways

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Qantas Airways Ltd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Qantas Airways showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cathay Pacific and Qantas Airways

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

The idea behind Cathay Pacific Airways and Qantas Airways Ltd 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.