Correlation Between Cathay Pacific and EasyJet Plc
Can any of the company-specific risk be diversified away by investing in both Cathay Pacific and EasyJet Plc 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 Cathay Pacific and EasyJet Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cathay Pacific Airways and easyJet plc, you can compare the effects of market volatilities on Cathay Pacific and EasyJet Plc 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 Cathay Pacific with a short position of EasyJet Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cathay Pacific and EasyJet Plc.
Diversification Opportunities for Cathay Pacific and EasyJet Plc
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Cathay and EasyJet is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Cathay Pacific Airways and easyJet plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on easyJet plc and Cathay Pacific 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 Cathay Pacific Airways are associated (or correlated) with EasyJet Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of easyJet plc has no effect on the direction of Cathay Pacific i.e., Cathay Pacific and EasyJet Plc go up and down completely randomly.
Pair Corralation between Cathay Pacific and EasyJet Plc
Assuming the 90 days horizon Cathay Pacific Airways is expected to generate 1.07 times more return on investment than EasyJet Plc. However, Cathay Pacific is 1.07 times more volatile than easyJet plc. It trades about 0.02 of its potential returns per unit of risk. easyJet plc is currently generating about 0.01 per unit of risk. If you would invest 498.00 in Cathay Pacific Airways on February 26, 2024 and sell it today you would earn a total of 37.00 from holding Cathay Pacific Airways or generate 7.43% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Cathay Pacific Airways vs. easyJet plc
Performance |
Timeline |
Cathay Pacific Airways |
easyJet plc |
Cathay Pacific and EasyJet Plc Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Cathay Pacific and EasyJet Plc
The main advantage of trading using opposite Cathay Pacific and EasyJet Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cathay Pacific position performs unexpectedly, EasyJet Plc 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 EasyJet Plc will offset losses from the drop in EasyJet Plc's long position.Cathay Pacific vs. Singapore Airlines | Cathay Pacific vs. International Consolidated Airlines | Cathay Pacific vs. Air France KLM | Cathay Pacific vs. Qantas Airways Ltd |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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