Correlation Between Cebu Air and EasyJet PLC

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

By analyzing existing cross correlation between Cebu Air and EasyJet PLC ADR, you can compare the effects of market volatilities on Cebu Air and EasyJet PLC 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 EasyJet PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cebu Air and EasyJet PLC.

Diversification Opportunities for Cebu Air and EasyJet PLC

0.0

Correlation Coefficient

Cebu Air  EasyJet PLC

Pay attention - limited upside

The 3 months correlation between Cebu and EasyJet is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air and EasyJet PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EasyJet PLC ADR 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 are associated (or correlated) with EasyJet PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EasyJet PLC ADR has no effect on the direction of Cebu Air i.e., Cebu Air and EasyJet PLC go up and down completely randomly.

Pair Corralation between Cebu Air and EasyJet PLC

Assuming the 90 days horizon Cebu Air is expected to under-perform the EasyJet PLC. In addition to that, Cebu Air is 2.34 times more volatile than EasyJet PLC ADR. It trades about -0.05 of its total potential returns per unit of risk. EasyJet PLC ADR is currently generating about 0.03 per unit of volatility. If you would invest  534.00  in EasyJet PLC ADR on December 2, 2024 and sell it today you would earn a total of  96.00  from holding EasyJet PLC ADR or generate 17.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.67%
Values	Daily Returns

Cebu Air  vs.  EasyJet PLC ADR

Cebu Air

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cebu Air has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cebu Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

EasyJet PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days EasyJet PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, EasyJet PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cebu Air and EasyJet PLC

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

The idea behind Cebu Air and EasyJet PLC 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.