Correlation Between LATAM Airlines and National Beverage

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

Diversification Opportunities for LATAM Airlines and National Beverage

-0.73

Correlation Coefficient

LATAM Airlines  National Beverage

Pay attention - limited upside

The 3 months correlation between LATAM and National is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp 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 National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and National Beverage go up and down completely randomly.

Pair Corralation between LATAM Airlines and National Beverage

Considering the 90-day investment horizon LATAM Airlines Group is expected to generate 0.94 times more return on investment than National Beverage. However, LATAM Airlines Group is 1.07 times less risky than National Beverage. It trades about 0.2 of its potential returns per unit of risk. National Beverage Corp is currently generating about -0.13 per unit of risk. If you would invest  2,775  in LATAM Airlines Group on December 20, 2024 and sell it today you would earn a total of  488.00  from holding LATAM Airlines Group or generate 17.59% return on investment over 90 days.

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

LATAM Airlines Group  vs.  National Beverage Corp

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 15 (%) 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.

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with LATAM Airlines and National Beverage

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

The idea behind LATAM Airlines Group and National Beverage Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.