Correlation Between LATAM Airlines and Las Condes

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

Diversification Opportunities for LATAM Airlines and Las Condes

0.71

Correlation Coefficient

LATAM Airlines  Las Condes

Poor diversification

The 3 months correlation between LATAM and Las is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Las Condes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Las Condes 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 Las Condes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Las Condes has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Las Condes go up and down completely randomly.

Pair Corralation between LATAM Airlines and Las Condes

Assuming the 90 days trading horizon LATAM Airlines is expected to generate 1.57 times less return on investment than Las Condes. But when comparing it to its historical volatility, LATAM Airlines Group is 3.37 times less risky than Las Condes. It trades about 0.13 of its potential returns per unit of risk. Las Condes is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,110,100  in Las Condes on December 30, 2024 and sell it today you would earn a total of  119,500  from holding Las Condes or generate 10.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

LATAM Airlines Group  vs.  Las Condes

LATAM Airlines Group

Risk-Adjusted Performance

OK

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

Las Condes

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Las Condes are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Las Condes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and Las Condes

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

The idea behind LATAM Airlines Group and Las Condes 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.