Correlation Between Royalty Management and Cebu Air

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

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

Diversification Opportunities for Royalty Management and Cebu Air

-0.58

Correlation Coefficient

Royalty Management  Cebu Air

Excellent diversification

The 3 months correlation between Royalty and Cebu is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Royalty Management Holding and Cebu Air ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air ADR and Royalty Management 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 Royalty Management Holding 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 ADR has no effect on the direction of Royalty Management i.e., Royalty Management and Cebu Air go up and down completely randomly.

Pair Corralation between Royalty Management and Cebu Air

Given the investment horizon of 90 days Royalty Management Holding is expected to generate 2.23 times more return on investment than Cebu Air. However, Royalty Management is 2.23 times more volatile than Cebu Air ADR. It trades about 0.08 of its potential returns per unit of risk. Cebu Air ADR is currently generating about -0.12 per unit of risk. If you would invest  91.00  in Royalty Management Holding on September 17, 2024 and sell it today you would earn a total of  16.00  from holding Royalty Management Holding or generate 17.58% return on investment over 90 days.

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

Royalty Management Holding  vs.  Cebu Air ADR

Royalty Management

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Royalty Management displayed solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain 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.

Pair Trading with Royalty Management and Cebu Air

The main advantage of trading using opposite Royalty Management and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Management 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 Royalty Management Holding and Cebu Air ADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.