Correlation Between Philippine Business and Metropolitan Bank

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

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

Diversification Opportunities for Philippine Business and Metropolitan Bank

-0.44

Correlation Coefficient

Philippine Business  Metropolitan Bank

Very good diversification

The 3 months correlation between Philippine and Metropolitan is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and Metropolitan Bank Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan Bank Trust and Philippine Business 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 Philippine Business Bank are associated (or correlated) with Metropolitan Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan Bank Trust has no effect on the direction of Philippine Business i.e., Philippine Business and Metropolitan Bank go up and down completely randomly.

Pair Corralation between Philippine Business and Metropolitan Bank

Assuming the 90 days trading horizon Philippine Business Bank is expected to generate 0.81 times more return on investment than Metropolitan Bank. However, Philippine Business Bank is 1.24 times less risky than Metropolitan Bank. It trades about 0.15 of its potential returns per unit of risk. Metropolitan Bank Trust is currently generating about 0.03 per unit of risk. If you would invest  835.00  in Philippine Business Bank on September 13, 2024 and sell it today you would earn a total of  115.00  from holding Philippine Business Bank or generate 13.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	92.06%
Values	Daily Returns

Philippine Business Bank  vs.  Metropolitan Bank Trust

Philippine Business Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine Business Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Philippine Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Philippine Business and Metropolitan Bank

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

The idea behind Philippine Business Bank and Metropolitan Bank Trust 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.