Correlation Between International Consolidated and Cathay Pacific

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

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

Diversification Opportunities for International Consolidated and Cathay Pacific

0.12

Correlation Coefficient

International Consolidated  Cathay Pacific

Average diversification

The 3 months correlation between International and Cathay is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and Cathay Pacific Airways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Pacific Airways and International Consolidated 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 International Consolidated Airlines are associated (or correlated) with Cathay Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Pacific Airways has no effect on the direction of International Consolidated i.e., International Consolidated and Cathay Pacific go up and down completely randomly.

Pair Corralation between International Consolidated and Cathay Pacific

Assuming the 90 days horizon International Consolidated Airlines is expected to under-perform the Cathay Pacific. In addition to that, International Consolidated is 1.04 times more volatile than Cathay Pacific Airways. It trades about -0.02 of its total potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.07 per unit of volatility. If you would invest  619.00  in Cathay Pacific Airways on December 24, 2024 and sell it today you would earn a total of  51.00  from holding Cathay Pacific Airways or generate 8.24% return on investment over 90 days.

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

International Consolidated Air  vs.  Cathay Pacific Airways

International Consolidated

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Consolidated Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, International Consolidated is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cathay Pacific Airways

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Cathay Pacific may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with International Consolidated and Cathay Pacific

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

The idea behind International Consolidated Airlines and Cathay Pacific Airways 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.