Correlation Between East West and Philippine Business

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

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

Diversification Opportunities for East West and Philippine Business

0.42

Correlation Coefficient

East West  Philippine Business

Very weak diversification

The 3 months correlation between East and Philippine is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding East West Banking and Philippine Business Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philippine Business Bank and East West 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 East West Banking are associated (or correlated) with Philippine Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philippine Business Bank has no effect on the direction of East West i.e., East West and Philippine Business go up and down completely randomly.

Pair Corralation between East West and Philippine Business

Assuming the 90 days trading horizon East West is expected to generate 1.6 times less return on investment than Philippine Business. But when comparing it to its historical volatility, East West Banking is 1.12 times less risky than Philippine Business. It trades about 0.15 of its potential returns per unit of risk. Philippine Business Bank is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  790.00  in Philippine Business Bank on September 18, 2024 and sell it today you would earn a total of  150.00  from holding Philippine Business Bank or generate 18.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	93.65%
Values	Daily Returns

East West Banking  vs.  Philippine Business Bank

East West Banking

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Banking are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, East West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Philippine Business Bank

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine Business Bank are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Philippine Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with East West and Philippine Business

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

The idea behind East West Banking and Philippine Business Bank 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.