Correlation Between LATAM Airlines and Yuexiu Transport

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

Diversification Opportunities for LATAM Airlines and Yuexiu Transport

0.0

Correlation Coefficient

LATAM Airlines  Yuexiu Transport

Pay attention - limited upside

The 3 months correlation between LATAM and Yuexiu is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Yuexiu Transport Infrastructur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuexiu Transport Inf 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 Yuexiu Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuexiu Transport Inf has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Yuexiu Transport go up and down completely randomly.

Pair Corralation between LATAM Airlines and Yuexiu Transport

Considering the 90-day investment horizon LATAM Airlines Group is expected to generate 1.56 times more return on investment than Yuexiu Transport. However, LATAM Airlines is 1.56 times more volatile than Yuexiu Transport Infrastructure. It trades about 0.12 of its potential returns per unit of risk. Yuexiu Transport Infrastructure is currently generating about 0.04 per unit of risk. If you would invest  2,470  in LATAM Airlines Group on December 4, 2024 and sell it today you would earn a total of  706.00  from holding LATAM Airlines Group or generate 28.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	30.83%
Values	Daily Returns

LATAM Airlines Group  vs.  Yuexiu Transport Infrastructur

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 12 (%) 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.

Yuexiu Transport Inf

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yuexiu Transport Infrastructure has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Yuexiu Transport is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with LATAM Airlines and Yuexiu Transport

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

The idea behind LATAM Airlines Group and Yuexiu Transport Infrastructure 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .