Correlation Between Deluxe and LATAM Airlines

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

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

Diversification Opportunities for Deluxe and LATAM Airlines

0.1

Correlation Coefficient

Deluxe  LATAM Airlines

Average diversification

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

Pair Corralation between Deluxe and LATAM Airlines

Considering the 90-day investment horizon Deluxe is expected to generate 1.64 times less return on investment than LATAM Airlines. In addition to that, Deluxe is 1.56 times more volatile than LATAM Airlines Group. It trades about 0.03 of its total potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.08 per unit of volatility. If you would invest  2,470  in LATAM Airlines Group on October 26, 2024 and sell it today you would earn a total of  357.00  from holding LATAM Airlines Group or generate 14.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	25.51%
Values	Daily Returns

Deluxe  vs.  LATAM Airlines Group

Deluxe

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

LATAM Airlines Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, LATAM Airlines is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Deluxe and LATAM Airlines

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

The idea behind Deluxe and LATAM Airlines Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.