Correlation Between NYSE Composite and Copa Holdings

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

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

Diversification Opportunities for NYSE Composite and Copa Holdings

0.8

Correlation Coefficient

NYSE Composite  Copa Holdings

Very poor diversification

The 3 months correlation between NYSE and Copa is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Copa Holdings SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copa Holdings SA and NYSE Composite 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 NYSE Composite are associated (or correlated) with Copa Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copa Holdings SA has no effect on the direction of NYSE Composite i.e., NYSE Composite and Copa Holdings go up and down completely randomly.

Pair Corralation between NYSE Composite and Copa Holdings

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.14 times less return on investment than Copa Holdings. But when comparing it to its historical volatility, NYSE Composite is 2.72 times less risky than Copa Holdings. It trades about 0.19 of its potential returns per unit of risk. Copa Holdings SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,918  in Copa Holdings SA on February 12, 2024 and sell it today you would earn a total of  1,432  from holding Copa Holdings SA or generate 16.06% return on investment over 90 days.

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

NYSE Composite  vs.  Copa Holdings SA

Pair Trading with NYSE Composite and Copa Holdings

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

The idea behind NYSE Composite and Copa Holdings SA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..