Correlation Between Vodka Brands and Cebu Air

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

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

Diversification Opportunities for Vodka Brands and Cebu Air

-0.16

Correlation Coefficient

Vodka Brands  Cebu Air

Good diversification

The 3 months correlation between Vodka and Cebu is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Vodka Brands Corp 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 Vodka Brands 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 Vodka Brands 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 ADR has no effect on the direction of Vodka Brands i.e., Vodka Brands and Cebu Air go up and down completely randomly.

Pair Corralation between Vodka Brands and Cebu Air

Given the investment horizon of 90 days Vodka Brands Corp is expected to generate 2.04 times more return on investment than Cebu Air. However, Vodka Brands is 2.04 times more volatile than Cebu Air ADR. It trades about 0.05 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  105.00  in Vodka Brands Corp on September 4, 2024 and sell it today you would earn a total of  7.00  from holding Vodka Brands Corp or generate 6.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Vodka Brands Corp  vs.  Cebu Air ADR

Vodka Brands Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vodka Brands Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward-looking signals, Vodka Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Vodka Brands and Cebu Air

The main advantage of trading using opposite Vodka Brands and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vodka Brands 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 Vodka Brands Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.