Correlation Between LATAM Airlines and Empresas Copec

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

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

Diversification Opportunities for LATAM Airlines and Empresas Copec

0.62

Correlation Coefficient

LATAM Airlines  Empresas Copec

Poor diversification

The 3 months correlation between LATAM and Empresas is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Empresas Copec SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empresas Copec SA and LATAM Airlines 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 LATAM Airlines Group are associated (or correlated) with Empresas Copec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empresas Copec SA has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Empresas Copec go up and down completely randomly.

Pair Corralation between LATAM Airlines and Empresas Copec

Assuming the 90 days trading horizon LATAM Airlines Group is expected to generate 0.89 times more return on investment than Empresas Copec. However, LATAM Airlines Group is 1.12 times less risky than Empresas Copec. It trades about 0.18 of its potential returns per unit of risk. Empresas Copec SA is currently generating about 0.13 per unit of risk. If you would invest  1,354  in LATAM Airlines Group on December 1, 2024 and sell it today you would earn a total of  186.00  from holding LATAM Airlines Group or generate 13.74% return on investment over 90 days.

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

LATAM Airlines Group  vs.  Empresas Copec SA

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 14 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting primary indicators, LATAM Airlines displayed solid returns over the last few months and may actually be approaching a breakup point.

Empresas Copec SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empresas Copec SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Empresas Copec may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with LATAM Airlines and Empresas Copec

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

The idea behind LATAM Airlines Group and Empresas Copec SA 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.