Correlation Between Sellas Life and LATAM Airlines

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

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

Diversification Opportunities for Sellas Life and LATAM Airlines

0.62

Correlation Coefficient

Sellas Life  LATAM Airlines

Poor diversification

The 3 months correlation between Sellas and LATAM is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Sellas Life Sciences 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 Sellas Life 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 Sellas Life Sciences 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 Sellas Life i.e., Sellas Life and LATAM Airlines go up and down completely randomly.

Pair Corralation between Sellas Life and LATAM Airlines

Considering the 90-day investment horizon Sellas Life Sciences is expected to generate 5.38 times more return on investment than LATAM Airlines. However, Sellas Life is 5.38 times more volatile than LATAM Airlines Group. It trades about 0.07 of its potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.2 per unit of risk. If you would invest  90.00  in Sellas Life Sciences on December 19, 2024 and sell it today you would earn a total of  18.00  from holding Sellas Life Sciences or generate 20.0% return on investment over 90 days.

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

Sellas Life Sciences  vs.  LATAM Airlines Group

Sellas Life Sciences

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sellas Life Sciences are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Sellas Life unveiled solid returns over the last few months and may actually be approaching a breakup point.

LATAM Airlines Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, LATAM Airlines displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sellas Life and LATAM Airlines

The main advantage of trading using opposite Sellas Life and LATAM Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sellas Life 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 Sellas Life Sciences 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.