Correlation Between LATAM Airlines and BRF SA

Can any of the company-specific risk be diversified away by investing in both LATAM Airlines and BRF SA 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 LATAM Airlines and BRF SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LATAM Airlines Group and BRF SA ADR, you can compare the effects of market volatilities on LATAM Airlines and BRF SA 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 LATAM Airlines with a short position of BRF SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of LATAM Airlines and BRF SA.

Diversification Opportunities for LATAM Airlines and BRF SA

-0.04

Correlation Coefficient

LATAM Airlines  BRF SA

Good diversification

The 3 months correlation between LATAM and BRF is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding LATAM Airlines Group and BRF SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA ADR and LATAM 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 LATAM Airlines Group are associated (or correlated) with BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA ADR has no effect on the direction of LATAM Airlines i.e., LATAM Airlines and BRF SA go up and down completely randomly.

Pair Corralation between LATAM Airlines and BRF SA

Considering the 90-day investment horizon LATAM Airlines Group is expected to generate 0.68 times more return on investment than BRF SA. However, LATAM Airlines Group is 1.48 times less risky than BRF SA. It trades about 0.06 of its potential returns per unit of risk. BRF SA ADR is currently generating about 0.0 per unit of risk. If you would invest  2,583  in LATAM Airlines Group on June 24, 2024 and sell it today you would earn a total of  39.00  from holding LATAM Airlines Group or generate 1.51% return on investment over 90 days.

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

LATAM Airlines Group  vs.  BRF SA ADR

LATAM Airlines Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, LATAM Airlines may actually be approaching a critical reversion point that can send shares even higher in October 2024.

BRF SA ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, BRF SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LATAM Airlines and BRF SA

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

The idea behind LATAM Airlines Group and BRF SA ADR 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.