Correlation Between Air France and International Consolidated

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

By analyzing existing cross correlation between Air France KLM and International Consolidated Airlines, you can compare the effects of market volatilities on Air France and International Consolidated 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 Air France with a short position of International Consolidated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air France and International Consolidated.

Diversification Opportunities for Air France and International Consolidated

-0.63

Correlation Coefficient

Air France  International Consolidated

Excellent diversification

The 3 months correlation between Air and International is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Air France KLM and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated and Air France 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 Air France KLM are associated (or correlated) with International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of Air France i.e., Air France and International Consolidated go up and down completely randomly.

Pair Corralation between Air France and International Consolidated

Assuming the 90 days horizon Air France KLM is expected to under-perform the International Consolidated. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air France KLM is 1.44 times less risky than International Consolidated. The pink sheet trades about -0.09 of its potential returns per unit of risk. The International Consolidated Airlines is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  171.00  in International Consolidated Airlines on February 3, 2024 and sell it today you would earn a total of  44.00  from holding International Consolidated Airlines or generate 25.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Air France KLM  vs.  International Consolidated Air

Air France KLM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air France KLM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

International Consolidated

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, International Consolidated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air France and International Consolidated

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

The idea behind Air France KLM and International Consolidated Airlines 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.