Correlation Between Unum and LATAM Airlines

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

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

Diversification Opportunities for Unum and LATAM Airlines

0.66

Correlation Coefficient

Unum  LATAM Airlines

Poor diversification

The 3 months correlation between Unum and LATAM is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Unum Group and LATAM Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LATAM Airlines Group and Unum 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 Unum Group are associated (or correlated) with LATAM Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LATAM Airlines Group has no effect on the direction of Unum i.e., Unum and LATAM Airlines go up and down completely randomly.

Pair Corralation between Unum and LATAM Airlines

Considering the 90-day investment horizon Unum Group is expected to under-perform the LATAM Airlines. In addition to that, Unum is 1.35 times more volatile than LATAM Airlines Group. It trades about -0.01 of its total potential returns per unit of risk. LATAM Airlines Group is currently generating about 0.07 per unit of volatility. If you would invest  2,714  in LATAM Airlines Group on January 6, 2025 and sell it today you would earn a total of  175.00  from holding LATAM Airlines Group or generate 6.45% return on investment over 90 days.

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

Unum Group  vs.  LATAM Airlines Group

Unum Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unum Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Unum is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

LATAM Airlines Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LATAM Airlines Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, LATAM Airlines may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Unum and LATAM Airlines

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

The idea behind Unum Group and LATAM Airlines Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.