Correlation Between Cebu Air and RFM Corp

Can any of the company-specific risk be diversified away by investing in both Cebu Air and RFM Corp 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 RFM Corp 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 RFM Corp, you can compare the effects of market volatilities on Cebu Air and RFM Corp 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 RFM Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cebu Air and RFM Corp.

Diversification Opportunities for Cebu Air and RFM Corp

-0.44

Correlation Coefficient

Cebu Air  RFM Corp

Very good diversification

The 3 months correlation between Cebu and RFM is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air Preferred and RFM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RFM Corp 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 RFM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RFM Corp has no effect on the direction of Cebu Air i.e., Cebu Air and RFM Corp go up and down completely randomly.

Pair Corralation between Cebu Air and RFM Corp

Assuming the 90 days trading horizon Cebu Air is expected to generate 2.45 times less return on investment than RFM Corp. But when comparing it to its historical volatility, Cebu Air Preferred is 1.13 times less risky than RFM Corp. It trades about 0.04 of its potential returns per unit of risk. RFM Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  269.00  in RFM Corp on September 27, 2024 and sell it today you would earn a total of  116.00  from holding RFM Corp or generate 43.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	89.26%
Values	Daily Returns

Cebu Air Preferred  vs.  RFM Corp

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 latest unsteady performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

RFM Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RFM Corp are ranked lower than 5 (%) 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.

Pair Trading with Cebu Air and RFM Corp

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

The idea behind Cebu Air Preferred and RFM Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.