Correlation Between SkyWest and Cathay Pacific

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

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

Diversification Opportunities for SkyWest and Cathay Pacific

0.54

Correlation Coefficient

SkyWest  Cathay Pacific

Very weak diversification

The 3 months correlation between SkyWest and Cathay is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding SkyWest 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 SkyWest 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 SkyWest 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 SkyWest i.e., SkyWest and Cathay Pacific go up and down completely randomly.

Pair Corralation between SkyWest and Cathay Pacific

Given the investment horizon of 90 days SkyWest is expected to generate 1.16 times more return on investment than Cathay Pacific. However, SkyWest is 1.16 times more volatile than Cathay Pacific Airways. It trades about 0.17 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.17 per unit of risk. If you would invest  8,735  in SkyWest on October 9, 2024 and sell it today you would earn a total of  2,049  from holding SkyWest or generate 23.46% return on investment over 90 days.

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

SkyWest  vs.  Cathay Pacific Airways

SkyWest

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Cathay Pacific Airways

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 13 (%) 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 SkyWest and Cathay Pacific

The main advantage of trading using opposite SkyWest and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SkyWest 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 SkyWest 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.