Correlation Between SM Investments and Cebu Air

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

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

Diversification Opportunities for SM Investments and Cebu Air

0.35

Correlation Coefficient

SM Investments  Cebu Air

Weak diversification

The 3 months correlation between SM Investments and Cebu is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments Corp 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 SM Investments 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 SM Investments Corp 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 SM Investments i.e., SM Investments and Cebu Air go up and down completely randomly.

Pair Corralation between SM Investments and Cebu Air

Assuming the 90 days trading horizon SM Investments Corp is expected to under-perform the Cebu Air. In addition to that, SM Investments is 1.09 times more volatile than Cebu Air Preferred. It trades about -0.02 of its total potential returns per unit of risk. Cebu Air Preferred is currently generating about 0.03 per unit of volatility. If you would invest  3,680  in Cebu Air Preferred on September 12, 2024 and sell it today you would earn a total of  95.00  from holding Cebu Air Preferred or generate 2.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	87.5%
Values	Daily Returns

SM Investments Corp  vs.  Cebu Air Preferred

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SM Investments is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Cebu Air Preferred

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cebu Air Preferred are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 SM Investments and Cebu Air

The main advantage of trading using opposite SM Investments and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Investments 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 SM Investments Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.