Correlation Between Cebu Air and Philippine National

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

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

Diversification Opportunities for Cebu Air and Philippine National

0.63

Correlation Coefficient

Cebu Air  Philippine National

Poor diversification

The 3 months correlation between Cebu and Philippine is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air Preferred and Philippine National Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philippine National Bank and Cebu Air 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 Cebu Air Preferred are associated (or correlated) with Philippine National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philippine National Bank has no effect on the direction of Cebu Air i.e., Cebu Air and Philippine National go up and down completely randomly.

Pair Corralation between Cebu Air and Philippine National

Assuming the 90 days trading horizon Cebu Air Preferred is expected to under-perform the Philippine National. But the stock apears to be less risky and, when comparing its historical volatility, Cebu Air Preferred is 1.26 times less risky than Philippine National. The stock trades about -0.02 of its potential returns per unit of risk. The Philippine National Bank is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,375  in Philippine National Bank on September 18, 2024 and sell it today you would earn a total of  225.00  from holding Philippine National Bank or generate 9.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.89%
Values	Daily Returns

Cebu Air Preferred  vs.  Philippine National Bank

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 relatively invariable fundamental drivers, Cebu Air is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Philippine National Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine National Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Philippine National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cebu Air and Philippine National

The main advantage of trading using opposite Cebu Air and Philippine National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cebu Air position performs unexpectedly, Philippine National 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 Philippine National will offset losses from the drop in Philippine National's long position.

The idea behind Cebu Air Preferred and Philippine National Bank 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 Stocks Directory module to find actively traded stocks across global markets.