Correlation Between Fondo Mutuo and THE PHILIPPINE

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

By analyzing existing cross correlation between Fondo Mutuo ETF and THE PHILIPPINE STOCK, you can compare the effects of market volatilities on Fondo Mutuo and THE PHILIPPINE 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 Fondo Mutuo with a short position of THE PHILIPPINE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fondo Mutuo and THE PHILIPPINE.

Diversification Opportunities for Fondo Mutuo and THE PHILIPPINE

0.04

Correlation Coefficient

Fondo Mutuo  THE PHILIPPINE

Significant diversification

The 3 months correlation between Fondo and THE is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Fondo Mutuo ETF and THE PHILIPPINE STOCK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THE PHILIPPINE STOCK and Fondo Mutuo 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 Fondo Mutuo ETF are associated (or correlated) with THE PHILIPPINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THE PHILIPPINE STOCK has no effect on the direction of Fondo Mutuo i.e., Fondo Mutuo and THE PHILIPPINE go up and down completely randomly.

Pair Corralation between Fondo Mutuo and THE PHILIPPINE

Assuming the 90 days trading horizon Fondo Mutuo ETF is expected to generate 0.6 times more return on investment than THE PHILIPPINE. However, Fondo Mutuo ETF is 1.67 times less risky than THE PHILIPPINE. It trades about 0.04 of its potential returns per unit of risk. THE PHILIPPINE STOCK is currently generating about -0.06 per unit of risk. If you would invest  134,861  in Fondo Mutuo ETF on September 1, 2024 and sell it today you would earn a total of  1,879  from holding Fondo Mutuo ETF or generate 1.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

Fondo Mutuo ETF  vs.  THE PHILIPPINE STOCK

Pair Trading with Fondo Mutuo and THE PHILIPPINE

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

The idea behind Fondo Mutuo ETF and THE PHILIPPINE STOCK 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.