Correlation Between Deutsche Lufthansa and Singapore Airlines

Can any of the company-specific risk be diversified away by investing in both Deutsche Lufthansa and Singapore Airlines 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 Deutsche Lufthansa and Singapore Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Deutsche Lufthansa AG and Singapore Airlines, you can compare the effects of market volatilities on Deutsche Lufthansa and Singapore Airlines 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 Deutsche Lufthansa with a short position of Singapore Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Lufthansa and Singapore Airlines.

Diversification Opportunities for Deutsche Lufthansa and Singapore Airlines

0.63

Correlation Coefficient

Deutsche Lufthansa  Singapore Airlines

Poor diversification

The 3 months correlation between Deutsche and Singapore is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Lufthansa AG and Singapore Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Airlines and Deutsche Lufthansa 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 Deutsche Lufthansa AG are associated (or correlated) with Singapore Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Airlines has no effect on the direction of Deutsche Lufthansa i.e., Deutsche Lufthansa and Singapore Airlines go up and down completely randomly.

Pair Corralation between Deutsche Lufthansa and Singapore Airlines

Assuming the 90 days horizon Deutsche Lufthansa AG is expected to generate 3.25 times more return on investment than Singapore Airlines. However, Deutsche Lufthansa is 3.25 times more volatile than Singapore Airlines. It trades about 0.18 of its potential returns per unit of risk. Singapore Airlines is currently generating about 0.53 per unit of risk. If you would invest  656.00  in Deutsche Lufthansa AG on December 1, 2024 and sell it today you would earn a total of  52.00  from holding Deutsche Lufthansa AG or generate 7.93% return on investment over 90 days.

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

Deutsche Lufthansa AG  vs.  Singapore Airlines

Deutsche Lufthansa

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Lufthansa AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward-looking signals, Deutsche Lufthansa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Singapore Airlines

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Airlines are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Singapore Airlines may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Deutsche Lufthansa and Singapore Airlines

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

The idea behind Deutsche Lufthansa AG and Singapore Airlines 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.