Correlation Between Aboitiz Equity and Cebu Air

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

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

Diversification Opportunities for Aboitiz Equity and Cebu Air

0.92

Correlation Coefficient

Aboitiz Equity  Cebu Air

Almost no diversification

The 3 months correlation between Aboitiz and Cebu is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Aboitiz Equity Ventures and Cebu Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air and Aboitiz Equity 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 Aboitiz Equity Ventures 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 has no effect on the direction of Aboitiz Equity i.e., Aboitiz Equity and Cebu Air go up and down completely randomly.

Pair Corralation between Aboitiz Equity and Cebu Air

Assuming the 90 days trading horizon Aboitiz Equity Ventures is expected to generate 1.07 times more return on investment than Cebu Air. However, Aboitiz Equity is 1.07 times more volatile than Cebu Air. It trades about -0.09 of its potential returns per unit of risk. Cebu Air is currently generating about -0.18 per unit of risk. If you would invest  3,765  in Aboitiz Equity Ventures on September 26, 2024 and sell it today you would lose (395.00) from holding Aboitiz Equity Ventures or give up 10.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Aboitiz Equity Ventures  vs.  Cebu Air

Aboitiz Equity Ventures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aboitiz Equity Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Cebu Air

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Aboitiz Equity and Cebu Air

The main advantage of trading using opposite Aboitiz Equity and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aboitiz Equity 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 Aboitiz Equity Ventures and Cebu Air 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.