Correlation Between Philippine National and Swift Foods

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

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

Diversification Opportunities for Philippine National and Swift Foods

0.31

Correlation Coefficient

Philippine National  Swift Foods

Weak diversification

The 3 months correlation between Philippine and Swift is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Philippine National Bank and Swift Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swift Foods and Philippine National 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 National Bank are associated (or correlated) with Swift Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swift Foods has no effect on the direction of Philippine National i.e., Philippine National and Swift Foods go up and down completely randomly.

Pair Corralation between Philippine National and Swift Foods

Assuming the 90 days trading horizon Philippine National Bank is expected to under-perform the Swift Foods. But the stock apears to be less risky and, when comparing its historical volatility, Philippine National Bank is 5.68 times less risky than Swift Foods. The stock trades about -0.05 of its potential returns per unit of risk. The Swift Foods is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Swift Foods on September 24, 2024 and sell it today you would earn a total of  0.50  from holding Swift Foods or generate 10.0% return on investment over 90 days.

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

Philippine National Bank  vs.  Swift Foods

Philippine National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Philippine National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Philippine National is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Swift Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swift Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Swift Foods is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Philippine National and Swift Foods

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

The idea behind Philippine National Bank and Swift Foods 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.