Correlation Between Eltek and LATAM Airlines

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

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

Diversification Opportunities for Eltek and LATAM Airlines

-0.17

Correlation Coefficient

Eltek  LATAM Airlines

Good diversification

The 3 months correlation between Eltek and LATAM is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Eltek 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 Eltek 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 Eltek 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 Eltek i.e., Eltek and LATAM Airlines go up and down completely randomly.

Pair Corralation between Eltek and LATAM Airlines

Given the investment horizon of 90 days Eltek is expected to under-perform the LATAM Airlines. In addition to that, Eltek is 2.43 times more volatile than LATAM Airlines Group. It trades about -0.08 of its total potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.2 per unit of volatility. If you would invest  2,757  in LATAM Airlines Group on December 19, 2024 and sell it today you would earn a total of  488.00  from holding LATAM Airlines Group or generate 17.7% return on investment over 90 days.

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

Eltek  vs.  LATAM Airlines Group

Eltek

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eltek has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

LATAM Airlines Group

Risk-Adjusted Performance

Good

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

Pair Trading with Eltek and LATAM Airlines

The main advantage of trading using opposite Eltek and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eltek 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 Eltek 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.