Correlation Between Air China and Cebu Air
Can any of the company-specific risk be diversified away by investing in both Air China 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 Air China and Cebu Air into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air China Limited and Cebu Air ADR, you can compare the effects of market volatilities on Air China 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 Air China with a short position of Cebu Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air China and Cebu Air.
Diversification Opportunities for Air China and Cebu Air
Very good diversification
The 3 months correlation between Air and Cebu is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Air China Limited 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 Air China 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 Air China Limited 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 Air China i.e., Air China and Cebu Air go up and down completely randomly.
Pair Corralation between Air China and Cebu Air
Assuming the 90 days horizon Air China Limited is expected to under-perform the Cebu Air. But the pink sheet apears to be less risky and, when comparing its historical volatility, Air China Limited is 1.29 times less risky than Cebu Air. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Cebu Air ADR is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 366.00 in Cebu Air ADR on August 29, 2024 and sell it today you would lose (181.00) from holding Cebu Air ADR or give up 49.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 66.73% |
| Values | Daily Returns |
Air China Limited vs. Cebu Air ADR
Performance |
| Timeline |
| Air China Limited |
| Cebu Air ADR |
Air China and Cebu Air Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air China and Cebu Air
The main advantage of trading using opposite Air China and Cebu Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air China 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.| Air China vs. Finnair Oyj | Air China vs. easyJet plc | Air China vs. Norse Atlantic ASA | Air China vs. AirAsia Group Berhad |
| Cebu Air vs. Finnair Oyj | Cebu Air vs. easyJet plc | Cebu Air vs. Norse Atlantic ASA | Cebu Air vs. Air China Limited |
Check out your portfolio center.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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