Correlation Between National Beverage and LATAM Airlines

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

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

Diversification Opportunities for National Beverage and LATAM Airlines

0.27

Correlation Coefficient

National Beverage  LATAM Airlines

Modest diversification

The 3 months correlation between National and LATAM is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp 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 National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and LATAM Airlines go up and down completely randomly.

Pair Corralation between National Beverage and LATAM Airlines

Given the investment horizon of 90 days National Beverage Corp is expected to under-perform the LATAM Airlines. In addition to that, National Beverage is 1.23 times more volatile than LATAM Airlines Group. It trades about -0.01 of its total potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.06 per unit of volatility. If you would invest  2,470  in LATAM Airlines Group on October 9, 2024 and sell it today you would earn a total of  244.00  from holding LATAM Airlines Group or generate 9.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	69.7%
Values	Daily Returns

National Beverage Corp  vs.  LATAM Airlines Group

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

LATAM Airlines Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 4 (%) 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 current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with National Beverage and LATAM Airlines

The main advantage of trading using opposite National Beverage and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.