Correlation Between LATAM Airlines and Contextlogic

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

Diversification Opportunities for LATAM Airlines and Contextlogic

0.72

Correlation Coefficient

LATAM Airlines  Contextlogic

Poor diversification

The 3 months correlation between LATAM and Contextlogic is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Contextlogic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Contextlogic 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 Contextlogic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Contextlogic has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Contextlogic go up and down completely randomly.

Pair Corralation between LATAM Airlines and Contextlogic

Considering the 90-day investment horizon LATAM Airlines Group is expected to generate 0.51 times more return on investment than Contextlogic. However, LATAM Airlines Group is 1.96 times less risky than Contextlogic. It trades about -0.2 of its potential returns per unit of risk. Contextlogic is currently generating about -0.17 per unit of risk. If you would invest  2,854  in LATAM Airlines Group on October 11, 2024 and sell it today you would lose (148.00) from holding LATAM Airlines Group or give up 5.19% of portfolio value over 90 days.

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

LATAM Airlines Group  vs.  Contextlogic

LATAM Airlines Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, LATAM Airlines is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Contextlogic

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Contextlogic are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Contextlogic exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and Contextlogic

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

The idea behind LATAM Airlines Group and Contextlogic 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.