Correlation Between Cebu Air and Farmers Merchants

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

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

Diversification Opportunities for Cebu Air and Farmers Merchants

-0.72

Correlation Coefficient

Cebu Air  Farmers Merchants

Pay attention - limited upside

The 3 months correlation between Cebu and Farmers is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air ADR and Farmers Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Merchants Bancorp 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 ADR are associated (or correlated) with Farmers Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Merchants Bancorp has no effect on the direction of Cebu Air i.e., Cebu Air and Farmers Merchants go up and down completely randomly.

Pair Corralation between Cebu Air and Farmers Merchants

Assuming the 90 days horizon Cebu Air ADR is expected to under-perform the Farmers Merchants. But the pink sheet apears to be less risky and, when comparing its historical volatility, Cebu Air ADR is 1.21 times less risky than Farmers Merchants. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Farmers Merchants Bancorp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  96,135  in Farmers Merchants Bancorp on October 5, 2024 and sell it today you would earn a total of  9,865  from holding Farmers Merchants Bancorp or generate 10.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Cebu Air ADR  vs.  Farmers Merchants Bancorp

Cebu Air ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Farmers Merchants Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers Merchants Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Farmers Merchants may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cebu Air and Farmers Merchants

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

The idea behind Cebu Air ADR and Farmers Merchants Bancorp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.