Correlation Between Sun Life and Cebu Air

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

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

Diversification Opportunities for Sun Life and Cebu Air

-0.08

Correlation Coefficient

Sun Life  Cebu Air

Good diversification

The 3 months correlation between Sun and Cebu is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Sun Life Financial and Cebu Air Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cebu Air Preferred and Sun Life 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 Sun Life Financial 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 Preferred has no effect on the direction of Sun Life i.e., Sun Life and Cebu Air go up and down completely randomly.

Pair Corralation between Sun Life and Cebu Air

Assuming the 90 days trading horizon Sun Life Financial is expected to generate 1.98 times more return on investment than Cebu Air. However, Sun Life is 1.98 times more volatile than Cebu Air Preferred. It trades about 0.1 of its potential returns per unit of risk. Cebu Air Preferred is currently generating about 0.03 per unit of risk. If you would invest  336,179  in Sun Life Financial on September 15, 2024 and sell it today you would earn a total of  18,821  from holding Sun Life Financial or generate 5.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.33%
Values	Daily Returns

Sun Life Financial  vs.  Cebu Air Preferred

Sun Life Financial

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Sun Life Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady technical and fundamental indicators, Sun Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Sun Life and Cebu Air

The main advantage of trading using opposite Sun Life and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Life 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 Sun Life Financial and Cebu Air Preferred 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.