Correlation Between Metropolitan Bank and Philippine Savings

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

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

Diversification Opportunities for Metropolitan Bank and Philippine Savings

0.21

Correlation Coefficient

Metropolitan Bank  Philippine Savings

Modest diversification

The 3 months correlation between Metropolitan and Philippine is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Bank Trust and Philippine Savings Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philippine Savings Bank and Metropolitan Bank 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 Metropolitan Bank Trust are associated (or correlated) with Philippine Savings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philippine Savings Bank has no effect on the direction of Metropolitan Bank i.e., Metropolitan Bank and Philippine Savings go up and down completely randomly.

Pair Corralation between Metropolitan Bank and Philippine Savings

Assuming the 90 days trading horizon Metropolitan Bank is expected to generate 1.69 times less return on investment than Philippine Savings. In addition to that, Metropolitan Bank is 1.08 times more volatile than Philippine Savings Bank. It trades about 0.03 of its total potential returns per unit of risk. Philippine Savings Bank is currently generating about 0.05 per unit of volatility. If you would invest  5,565  in Philippine Savings Bank on September 13, 2024 and sell it today you would earn a total of  255.00  from holding Philippine Savings Bank or generate 4.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Metropolitan Bank Trust  vs.  Philippine Savings Bank

Metropolitan Bank Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan Bank Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Metropolitan Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Philippine Savings Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine Savings Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Philippine Savings is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Metropolitan Bank and Philippine Savings

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

The idea behind Metropolitan Bank Trust and Philippine Savings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.