Correlation Between Copa Holdings and Allegiant Travel

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

By analyzing existing cross correlation between Copa Holdings SA and Allegiant Travel, you can compare the effects of market volatilities on Copa Holdings and Allegiant Travel 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 Copa Holdings with a short position of Allegiant Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Copa Holdings and Allegiant Travel.

Diversification Opportunities for Copa Holdings and Allegiant Travel

-0.2

Correlation Coefficient

Copa Holdings  Allegiant Travel

Good diversification

The 3 months correlation between Copa and Allegiant is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Copa Holdings SA and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel and Copa Holdings 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 Copa Holdings SA are associated (or correlated) with Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of Copa Holdings i.e., Copa Holdings and Allegiant Travel go up and down completely randomly.

Pair Corralation between Copa Holdings and Allegiant Travel

Considering the 90-day investment horizon Copa Holdings SA is expected to generate 1.07 times more return on investment than Allegiant Travel. However, Copa Holdings is 1.07 times more volatile than Allegiant Travel. It trades about -0.05 of its potential returns per unit of risk. Allegiant Travel is currently generating about -0.35 per unit of risk. If you would invest  10,365  in Copa Holdings SA on February 3, 2024 and sell it today you would lose (298.00) from holding Copa Holdings SA or give up 2.88% of portfolio value over 90 days.

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

Copa Holdings SA  vs.  Allegiant Travel

Copa Holdings SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Copa Holdings SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Copa Holdings is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Allegiant Travel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allegiant Travel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Copa Holdings and Allegiant Travel

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

The idea behind Copa Holdings SA and Allegiant Travel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.