Correlation Between LATAM Airlines and Plaza SA

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

Diversification Opportunities for LATAM Airlines and Plaza SA

0.94

Correlation Coefficient

LATAM Airlines  Plaza SA

Almost no diversification

The 3 months correlation between LATAM and Plaza is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Plaza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plaza 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 Plaza SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plaza SA has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Plaza SA go up and down completely randomly.

Pair Corralation between LATAM Airlines and Plaza SA

Assuming the 90 days trading horizon LATAM Airlines is expected to generate 1.18 times less return on investment than Plaza SA. But when comparing it to its historical volatility, LATAM Airlines Group is 1.2 times less risky than Plaza SA. It trades about 0.18 of its potential returns per unit of risk. Plaza SA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  163,320  in Plaza SA on December 2, 2024 and sell it today you would earn a total of  26,680  from holding Plaza SA or generate 16.34% return on investment over 90 days.

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

LATAM Airlines Group  vs.  Plaza 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.

Plaza SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Plaza SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Plaza SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and Plaza SA

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

The idea behind LATAM Airlines Group and Plaza 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.