Correlation Between United Airlines and Cathay Pacific

Can any of the company-specific risk be diversified away by investing in both United 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 United 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 United Airlines Holdings and Cathay Pacific Airways, you can compare the effects of market volatilities on United 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 United Airlines with a short position of Cathay Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Airlines and Cathay Pacific.

Diversification Opportunities for United Airlines and Cathay Pacific

0.9

Correlation Coefficient

United Airlines  Cathay Pacific

Almost no diversification

The 3 months correlation between United and Cathay is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings 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 United 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 United Airlines Holdings 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 United Airlines i.e., United Airlines and Cathay Pacific go up and down completely randomly.

Pair Corralation between United Airlines and Cathay Pacific

Considering the 90-day investment horizon United Airlines Holdings is expected to generate 1.2 times more return on investment than Cathay Pacific. However, United Airlines is 1.2 times more volatile than Cathay Pacific Airways. It trades about 0.27 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.23 per unit of risk. If you would invest  7,451  in United Airlines Holdings on October 24, 2024 and sell it today you would earn a total of  3,478  from holding United Airlines Holdings or generate 46.69% return on investment over 90 days.

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

United Airlines Holdings  vs.  Cathay Pacific Airways

United Airlines Holdings

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, United Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.

Cathay Pacific Airways

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cathay Pacific Airways are ranked lower than 18 (%) 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 United Airlines and Cathay Pacific

The main advantage of trading using opposite United Airlines and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United 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 United Airlines Holdings 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.