Correlation Between LATAM Airlines and Allegiant Travel

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

Diversification Opportunities for LATAM Airlines and Allegiant Travel

-0.85

Correlation Coefficient

LATAM Airlines  Allegiant Travel

Pay attention - limited upside

The 3 months correlation between LATAM and Allegiant is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel 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 Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and Allegiant Travel go up and down completely randomly.

Pair Corralation between LATAM Airlines and Allegiant Travel

If you would invest  4,106  in Allegiant Travel on August 31, 2024 and sell it today you would earn a total of  3,996  from holding Allegiant Travel or generate 97.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

LATAM Airlines Group  vs.  Allegiant Travel

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 fairly strong basic indicators, LATAM Airlines is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Allegiant Travel

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Allegiant Travel are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Allegiant Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and Allegiant Travel

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

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