Correlation Between Metro Retail and Cebu Air

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

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

Diversification Opportunities for Metro Retail and Cebu Air

0.43

Correlation Coefficient

Metro Retail  Cebu Air

Very weak diversification

The 3 months correlation between Metro and Cebu is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores 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 Metro Retail 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 Metro Retail Stores 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 Metro Retail i.e., Metro Retail and Cebu Air go up and down completely randomly.

Pair Corralation between Metro Retail and Cebu Air

Assuming the 90 days trading horizon Metro Retail Stores is expected to generate 1.4 times more return on investment than Cebu Air. However, Metro Retail is 1.4 times more volatile than Cebu Air Preferred. It trades about 0.06 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  120.00  in Metro Retail Stores on December 31, 2024 and sell it today you would earn a total of  9.00  from holding Metro Retail Stores or generate 7.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.32%
Values	Daily Returns

Metro Retail Stores  vs.  Cebu Air Preferred

Metro Retail Stores

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Metro Retail may actually be approaching a critical reversion point that can send shares even higher in May 2025.

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 Metro Retail and Cebu Air

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

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.