Correlation Between Herc Holdings and Cebu Air

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

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

Diversification Opportunities for Herc Holdings and Cebu Air

-0.76

Correlation Coefficient

Herc Holdings  Cebu Air

Pay attention - limited upside

The 3 months correlation between Herc and Cebu is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and Cebu Air ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air ADR and Herc Holdings 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 Herc Holdings 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 ADR has no effect on the direction of Herc Holdings i.e., Herc Holdings and Cebu Air go up and down completely randomly.

Pair Corralation between Herc Holdings and Cebu Air

Considering the 90-day investment horizon Herc Holdings is expected to generate 0.88 times more return on investment than Cebu Air. However, Herc Holdings is 1.13 times less risky than Cebu Air. It trades about 0.04 of its potential returns per unit of risk. Cebu Air ADR is currently generating about -0.02 per unit of risk. If you would invest  12,699  in Herc Holdings on September 24, 2024 and sell it today you would earn a total of  6,034  from holding Herc Holdings or generate 47.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Herc Holdings  vs.  Cebu Air ADR

Herc Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Herc Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Herc Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Herc Holdings and Cebu Air

The main advantage of trading using opposite Herc Holdings and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Herc Holdings 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 Herc Holdings and Cebu Air 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.