Correlation Between Manila Mining and Cebu Air

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

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

Diversification Opportunities for Manila Mining and Cebu Air

-0.27

Correlation Coefficient

Manila Mining  Cebu Air

Very good diversification

The 3 months correlation between Manila and Cebu is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Manila Mining Corp and Cebu Air Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air Preferred and Manila Mining 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 Manila Mining Corp 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 Preferred has no effect on the direction of Manila Mining i.e., Manila Mining and Cebu Air go up and down completely randomly.

Pair Corralation between Manila Mining and Cebu Air

Assuming the 90 days trading horizon Manila Mining Corp is expected to generate 4.95 times more return on investment than Cebu Air. However, Manila Mining is 4.95 times more volatile than Cebu Air Preferred. It trades about 0.37 of its potential returns per unit of risk. Cebu Air Preferred is currently generating about 0.07 per unit of risk. If you would invest  0.27  in Manila Mining Corp on December 31, 2024 and sell it today you would earn a total of  0.49  from holding Manila Mining Corp or generate 181.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.43%
Values	Daily Returns

Manila Mining Corp  vs.  Cebu Air Preferred

Manila Mining Corp

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Manila Mining Corp are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Manila Mining exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cebu Air Preferred

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cebu Air Preferred are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Cebu Air may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Manila Mining and Cebu Air

The main advantage of trading using opposite Manila Mining and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Manila Mining 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 Manila Mining Corp and Cebu Air Preferred 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.