Correlation Between Microsoft and Cebu Air

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

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

Diversification Opportunities for Microsoft and Cebu Air

-0.56

Correlation Coefficient

Microsoft  Cebu Air

Excellent diversification

The 3 months correlation between Microsoft and Cebu is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Cebu Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Cebu Air go up and down completely randomly.

Pair Corralation between Microsoft and Cebu Air

Given the investment horizon of 90 days Microsoft is expected to generate 0.85 times more return on investment than Cebu Air. However, Microsoft is 1.17 times less risky than Cebu Air. It trades about 0.09 of its potential returns per unit of risk. Cebu Air is currently generating about -0.05 per unit of risk. If you would invest  25,262  in Microsoft on September 26, 2024 and sell it today you would earn a total of  18,671  from holding Microsoft or generate 73.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.26%
Values	Daily Returns

Microsoft  vs.  Cebu Air

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 Microsoft and Cebu Air

The main advantage of trading using opposite Microsoft and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.