Correlation Between Sociedad Punta and LATAM Airlines

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

By analyzing existing cross correlation between Sociedad Punta del and LATAM Airlines Group, you can compare the effects of market volatilities on Sociedad Punta and LATAM Airlines 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 Sociedad Punta with a short position of LATAM Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sociedad Punta and LATAM Airlines.

Diversification Opportunities for Sociedad Punta and LATAM Airlines

-0.37

Correlation Coefficient

Sociedad Punta  LATAM Airlines

Very good diversification

The 3 months correlation between Sociedad and LATAM is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Sociedad Punta del and LATAM Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LATAM Airlines Group and Sociedad Punta 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 Sociedad Punta del are associated (or correlated) with LATAM Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LATAM Airlines Group has no effect on the direction of Sociedad Punta i.e., Sociedad Punta and LATAM Airlines go up and down completely randomly.

Pair Corralation between Sociedad Punta and LATAM Airlines

Assuming the 90 days trading horizon Sociedad Punta del is expected to under-perform the LATAM Airlines. But the stock apears to be less risky and, when comparing its historical volatility, Sociedad Punta del is 1.98 times less risky than LATAM Airlines. The stock trades about -0.09 of its potential returns per unit of risk. The LATAM Airlines Group is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,159  in LATAM Airlines Group on September 5, 2024 and sell it today you would earn a total of  186.00  from holding LATAM Airlines Group or generate 16.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.0%
Values	Daily Returns

Sociedad Punta del  vs.  LATAM Airlines Group

Sociedad Punta del

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sociedad Punta del has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Sociedad Punta is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

LATAM Airlines Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting primary indicators, LATAM Airlines displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sociedad Punta and LATAM Airlines

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

The idea behind Sociedad Punta del and LATAM Airlines 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.