Correlation Between Cebu Air and Mesa Air

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

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

Diversification Opportunities for Cebu Air and Mesa Air

0.51

Correlation Coefficient

Cebu Air  Mesa Air

Very weak diversification

The 3 months correlation between Cebu and Mesa is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Cebu Air ADR and Mesa Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Air Group 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 ADR are associated (or correlated) with Mesa Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Air Group has no effect on the direction of Cebu Air i.e., Cebu Air and Mesa Air go up and down completely randomly.

Pair Corralation between Cebu Air and Mesa Air

Assuming the 90 days horizon Cebu Air ADR is expected to under-perform the Mesa Air. But the pink sheet apears to be less risky and, when comparing its historical volatility, Cebu Air ADR is 2.39 times less risky than Mesa Air. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Mesa Air Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  126.00  in Mesa Air Group on September 12, 2024 and sell it today you would lose (21.00) from holding Mesa Air Group or give up 16.67% of portfolio value over 90 days.

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

Cebu Air ADR  vs.  Mesa Air Group

Cebu Air ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cebu Air ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Mesa Air Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mesa Air Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cebu Air and Mesa Air

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

The idea behind Cebu Air ADR and Mesa Air Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.