Correlation Between Compagnie and Air France

Can any of the company-specific risk be diversified away by investing in both Compagnie and Air France 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 Compagnie and Air France into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Compagnie de Chemins and Air France KLM SA, you can compare the effects of market volatilities on Compagnie and Air France 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 Compagnie with a short position of Air France. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie and Air France.

Diversification Opportunities for Compagnie and Air France

-0.49

Correlation Coefficient

Compagnie  Air France

Very good diversification

The 3 months correlation between Compagnie and Air is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Chemins and Air France KLM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air France KLM and Compagnie 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 Compagnie de Chemins are associated (or correlated) with Air France. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air France KLM has no effect on the direction of Compagnie i.e., Compagnie and Air France go up and down completely randomly.

Pair Corralation between Compagnie and Air France

Assuming the 90 days trading horizon Compagnie de Chemins is expected to generate 0.99 times more return on investment than Air France. However, Compagnie de Chemins is 1.01 times less risky than Air France. It trades about 0.05 of its potential returns per unit of risk. Air France KLM SA is currently generating about -0.03 per unit of risk. If you would invest  60,986  in Compagnie de Chemins on September 28, 2024 and sell it today you would earn a total of  29,014  from holding Compagnie de Chemins or generate 47.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.86%
Values	Daily Returns

Compagnie de Chemins  vs.  Air France KLM SA

Compagnie de Chemins

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Chemins are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 Compagnie and Air France

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

The idea behind Compagnie de Chemins and Air France KLM SA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.