Correlation Between RFM Corp and Cebu Air

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

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

Diversification Opportunities for RFM Corp and Cebu Air

-0.46

Correlation Coefficient

RFM Corp  Cebu Air

Very good diversification

The 3 months correlation between RFM and Cebu is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding RFM 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 RFM Corp 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 RFM 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 RFM Corp i.e., RFM Corp and Cebu Air go up and down completely randomly.

Pair Corralation between RFM Corp and Cebu Air

Assuming the 90 days trading horizon RFM Corp is expected to generate 0.62 times more return on investment than Cebu Air. However, RFM Corp is 1.61 times less risky than Cebu Air. It trades about 0.09 of its potential returns per unit of risk. Cebu Air Preferred is currently generating about -0.36 per unit of risk. If you would invest  380.00  in RFM Corp on September 29, 2024 and sell it today you would earn a total of  7.00  from holding RFM Corp or generate 1.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	85.0%
Values	Daily Returns

RFM Corp  vs.  Cebu Air Preferred

RFM Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RFM Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, RFM Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cebu Air Preferred

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with RFM Corp and Cebu Air

The main advantage of trading using opposite RFM Corp and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RFM Corp 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 RFM 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.