Correlation Between Philippine Business and Philippine National

Can any of the company-specific risk be diversified away by investing in both Philippine Business and Philippine National 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 Philippine National 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 Philippine National Bank, you can compare the effects of market volatilities on Philippine Business and Philippine National 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 Philippine National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Philippine Business and Philippine National.

Diversification Opportunities for Philippine Business and Philippine National

0.02

Correlation Coefficient

Philippine Business  Philippine National

Significant diversification

The 3 months correlation between Philippine and Philippine is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and Philippine National Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philippine National Bank 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 Philippine National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philippine National Bank has no effect on the direction of Philippine Business i.e., Philippine Business and Philippine National go up and down completely randomly.

Pair Corralation between Philippine Business and Philippine National

Assuming the 90 days trading horizon Philippine Business Bank is expected to generate 0.61 times more return on investment than Philippine National. However, Philippine Business Bank is 1.65 times less risky than Philippine National. It trades about 0.22 of its potential returns per unit of risk. Philippine National Bank is currently generating about 0.08 per unit of risk. If you would invest  790.00  in Philippine Business Bank on September 17, 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	Insignificant
Accuracy	93.75%
Values	Daily Returns

Philippine Business Bank  vs.  Philippine National Bank

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 weak technical and fundamental indicators, Philippine Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

Philippine National Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine National Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Philippine National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Philippine Business and Philippine National

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

The idea behind Philippine Business Bank and Philippine National 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.