Correlation Between LATAM Airlines and Caravelle International

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

Diversification Opportunities for LATAM Airlines and Caravelle International

0.06

Correlation Coefficient

LATAM Airlines  Caravelle International

Significant diversification

The 3 months correlation between LATAM and Caravelle is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Caravelle International Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caravelle International 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 Caravelle International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caravelle International has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Caravelle International go up and down completely randomly.

Pair Corralation between LATAM Airlines and Caravelle International

Considering the 90-day investment horizon LATAM Airlines Group is expected to under-perform the Caravelle International. But the stock apears to be less risky and, when comparing its historical volatility, LATAM Airlines Group is 10.4 times less risky than Caravelle International. The stock trades about -0.04 of its potential returns per unit of risk. The Caravelle International Group is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Caravelle International Group on October 23, 2024 and sell it today you would earn a total of  144.00  from holding Caravelle International Group or generate 57.6% return on investment over 90 days.

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

LATAM Airlines Group  vs.  Caravelle International Group

LATAM Airlines Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LATAM Airlines Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, LATAM Airlines is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Caravelle International

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caravelle International Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Caravelle International displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and Caravelle International

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

The idea behind LATAM Airlines Group and Caravelle International Group 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.