Correlation Between Bank of the and BDO Unibank

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

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

Diversification Opportunities for Bank of the and BDO Unibank

0.37

Correlation Coefficient

Bank of the  BDO Unibank

Weak diversification

The 3 months correlation between Bank and BDO is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bank of the and BDO Unibank ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BDO Unibank ADR and Bank of the 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 Bank of the are associated (or correlated) with BDO Unibank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BDO Unibank ADR has no effect on the direction of Bank of the i.e., Bank of the and BDO Unibank go up and down completely randomly.

Pair Corralation between Bank of the and BDO Unibank

Assuming the 90 days horizon Bank of the is expected to generate 1.37 times more return on investment than BDO Unibank. However, Bank of the is 1.37 times more volatile than BDO Unibank ADR. It trades about 0.05 of its potential returns per unit of risk. BDO Unibank ADR is currently generating about 0.03 per unit of risk. If you would invest  3,573  in Bank of the on September 14, 2024 and sell it today you would earn a total of  1,162  from holding Bank of the or generate 32.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.42%
Values	Daily Returns

Bank of the  vs.  BDO Unibank ADR

Bank of the

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of the are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Bank of the may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BDO Unibank ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BDO Unibank ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank of the and BDO Unibank

The main advantage of trading using opposite Bank of the and BDO Unibank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of the position performs unexpectedly, BDO Unibank 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 BDO Unibank will offset losses from the drop in BDO Unibank's long position.

The idea behind Bank of the and BDO Unibank 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.