Correlation Between Ayala Corp and Cebu Air

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

By analyzing existing cross correlation between Ayala Corp and Cebu Air Preferred, you can compare the effects of market volatilities on Ayala Corp and Cebu Air 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 Ayala Corp with a short position of Cebu Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ayala Corp and Cebu Air.

Diversification Opportunities for Ayala Corp and Cebu Air

0.7

Correlation Coefficient

Ayala Corp  Cebu Air

Poor diversification

The 3 months correlation between Ayala and Cebu is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ayala Corp and Cebu Air Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air Preferred and Ayala Corp 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 Ayala Corp are associated (or correlated) with Cebu Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cebu Air Preferred has no effect on the direction of Ayala Corp i.e., Ayala Corp and Cebu Air go up and down completely randomly.

Pair Corralation between Ayala Corp and Cebu Air

Assuming the 90 days trading horizon Ayala Corp is expected to generate 1.53 times less return on investment than Cebu Air. In addition to that, Ayala Corp is 1.06 times more volatile than Cebu Air Preferred. It trades about 0.03 of its total potential returns per unit of risk. Cebu Air Preferred is currently generating about 0.04 per unit of volatility. If you would invest  3,575  in Cebu Air Preferred on September 4, 2024 and sell it today you would earn a total of  135.00  from holding Cebu Air Preferred or generate 3.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.06%
Values	Daily Returns

Ayala Corp  vs.  Cebu Air Preferred

Ayala Corp

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ayala Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Ayala Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Cebu Air Preferred

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cebu Air Preferred are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Cebu Air is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ayala Corp and Cebu Air

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

The idea behind Ayala Corp and Cebu Air Preferred 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.