Correlation Between International Consolidated and LATAM Airlines

Can any of the company-specific risk be diversified away by investing in both International Consolidated 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 International Consolidated and LATAM Airlines 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 LATAM Airlines Group, you can compare the effects of market volatilities on International Consolidated 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 International Consolidated with a short position of LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and LATAM Airlines.

Diversification Opportunities for International Consolidated and LATAM Airlines

0.59

Correlation Coefficient

International Consolidated  LATAM Airlines

Very weak diversification

The 3 months correlation between International and LATAM is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air 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 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 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 International Consolidated i.e., International Consolidated and LATAM Airlines go up and down completely randomly.

Pair Corralation between International Consolidated and LATAM Airlines

Assuming the 90 days horizon International Consolidated Airlines is expected to generate 1.32 times more return on investment than LATAM Airlines. However, International Consolidated is 1.32 times more volatile than LATAM Airlines Group. It trades about 0.08 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.06 per unit of risk. If you would invest  395.00  in International Consolidated Airlines on October 11, 2024 and sell it today you would earn a total of  365.00  from holding International Consolidated Airlines or generate 92.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	23.59%
Values	Daily Returns

International Consolidated Air  vs.  LATAM Airlines Group

International Consolidated

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, International Consolidated showed solid returns over the last few months and may actually be approaching a breakup point.

LATAM Airlines Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 3 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with International Consolidated and LATAM Airlines

The main advantage of trading using opposite International Consolidated and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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 International Consolidated Airlines 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.