Correlation Between Cebu Air and Transpacific Broadband

Can any of the company-specific risk be diversified away by investing in both Cebu Air and Transpacific Broadband 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 Transpacific Broadband 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 Transpacific Broadband Group, you can compare the effects of market volatilities on Cebu Air and Transpacific Broadband 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 Transpacific Broadband. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cebu Air and Transpacific Broadband.

Diversification Opportunities for Cebu Air and Transpacific Broadband

-0.18

Correlation Coefficient

Cebu Air  Transpacific Broadband

Good diversification

The 3 months correlation between Cebu and Transpacific is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air Preferred and Transpacific Broadband Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transpacific Broadband 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 Transpacific Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transpacific Broadband has no effect on the direction of Cebu Air i.e., Cebu Air and Transpacific Broadband go up and down completely randomly.

Pair Corralation between Cebu Air and Transpacific Broadband

Assuming the 90 days trading horizon Cebu Air is expected to generate 60.0 times less return on investment than Transpacific Broadband. But when comparing it to its historical volatility, Cebu Air Preferred is 1.79 times less risky than Transpacific Broadband. It trades about 0.0 of its potential returns per unit of risk. Transpacific Broadband Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Transpacific Broadband Group on November 29, 2024 and sell it today you would earn a total of  0.00  from holding Transpacific Broadband Group or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.47%
Values	Daily Returns

Cebu Air Preferred  vs.  Transpacific Broadband Group

Cebu Air Preferred

Risk-Adjusted Performance

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 latest stock price agitation, may contribute to short-term losses for the retail investors.

Transpacific Broadband

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transpacific Broadband Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Transpacific Broadband is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cebu Air and Transpacific Broadband

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

The idea behind Cebu Air Preferred and Transpacific Broadband 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.