Correlation Between LATAM Airlines and Copa Holdings

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

Diversification Opportunities for LATAM Airlines and Copa Holdings

0.78

Correlation Coefficient

LATAM Airlines  Copa Holdings

Poor diversification

The 3 months correlation between LATAM and Copa is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Copa Holdings SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copa Holdings 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 Copa Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copa Holdings SA has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Copa Holdings go up and down completely randomly.

Pair Corralation between LATAM Airlines and Copa Holdings

Considering the 90-day investment horizon LATAM Airlines Group is expected to generate 0.78 times more return on investment than Copa Holdings. However, LATAM Airlines Group is 1.28 times less risky than Copa Holdings. It trades about 0.19 of its potential returns per unit of risk. Copa Holdings SA is currently generating about 0.11 per unit of risk. If you would invest  2,754  in LATAM Airlines Group on December 26, 2024 and sell it today you would earn a total of  447.00  from holding LATAM Airlines Group or generate 16.23% 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.  Copa Holdings 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 weak basic indicators, LATAM Airlines displayed solid returns over the last few months and may actually be approaching a breakup point.

Copa Holdings SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Copa Holdings SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Copa Holdings sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and Copa Holdings

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

The idea behind LATAM Airlines Group and Copa Holdings 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.