Correlation Between Singapore Airlines and Cathay Pacific

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

By analyzing existing cross correlation between Singapore Airlines and Cathay Pacific Airways, you can compare the effects of market volatilities on Singapore Airlines and Cathay Pacific 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 Singapore Airlines with a short position of Cathay Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Singapore Airlines and Cathay Pacific.

Diversification Opportunities for Singapore Airlines and Cathay Pacific

0.45

Correlation Coefficient

Singapore Airlines  Cathay Pacific

Very weak diversification

The 3 months correlation between Singapore and Cathay is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Singapore Airlines and Cathay Pacific Airways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Pacific Airways and Singapore 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 Singapore Airlines are associated (or correlated) with Cathay Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Pacific Airways has no effect on the direction of Singapore Airlines i.e., Singapore Airlines and Cathay Pacific go up and down completely randomly.

Pair Corralation between Singapore Airlines and Cathay Pacific

Assuming the 90 days horizon Singapore Airlines is expected to generate 2.09 times less return on investment than Cathay Pacific. But when comparing it to its historical volatility, Singapore Airlines is 2.7 times less risky than Cathay Pacific. It trades about 0.12 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  615.00  in Cathay Pacific Airways on December 30, 2024 and sell it today you would earn a total of  72.00  from holding Cathay Pacific Airways or generate 11.71% return on investment over 90 days.

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

Singapore Airlines  vs.  Cathay Pacific Airways

Singapore Airlines

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Airlines are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Singapore Airlines is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cathay Pacific Airways

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Cathay Pacific showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Singapore Airlines and Cathay Pacific

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

The idea behind Singapore Airlines and Cathay Pacific Airways 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.