Correlation Between Cebu Air and DMCI Holdings

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

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

Diversification Opportunities for Cebu Air and DMCI Holdings

0.37

Correlation Coefficient

Cebu Air  DMCI Holdings

Weak diversification

The 3 months correlation between Cebu and DMCI is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air Preferred and DMCI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DMCI Holdings and Cebu Air 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 Cebu Air Preferred are associated (or correlated) with DMCI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DMCI Holdings has no effect on the direction of Cebu Air i.e., Cebu Air and DMCI Holdings go up and down completely randomly.

Pair Corralation between Cebu Air and DMCI Holdings

Assuming the 90 days trading horizon Cebu Air Preferred is expected to under-perform the DMCI Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Cebu Air Preferred is 1.17 times less risky than DMCI Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The DMCI Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  972.00  in DMCI Holdings on October 12, 2024 and sell it today you would earn a total of  126.00  from holding DMCI Holdings or generate 12.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.08%
Values	Daily Returns

Cebu Air Preferred  vs.  DMCI Holdings

Cebu Air Preferred

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Cebu Air is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

DMCI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DMCI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DMCI Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cebu Air and DMCI Holdings

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

The idea behind Cebu Air Preferred and DMCI Holdings 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..