Correlation Between Philippine National and Transpacific Broadband

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

Diversification Opportunities for Philippine National and Transpacific Broadband

-0.23

Correlation Coefficient

Philippine National  Transpacific Broadband

Very good diversification

The 3 months correlation between Philippine and Transpacific is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Philippine National Bank and Transpacific Broadband Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transpacific Broadband 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 Transpacific Broadband. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transpacific Broadband has no effect on the direction of Philippine National i.e., Philippine National and Transpacific Broadband go up and down completely randomly.

Pair Corralation between Philippine National and Transpacific Broadband

Assuming the 90 days trading horizon Philippine National Bank is expected to under-perform the Transpacific Broadband. But the stock apears to be less risky and, when comparing its historical volatility, Philippine National Bank is 2.61 times less risky than Transpacific Broadband. The stock trades about -0.01 of its potential returns per unit of risk. The Transpacific Broadband Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Transpacific Broadband Group on September 24, 2024 and sell it today you would earn a total of  1.00  from holding Transpacific Broadband Group or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.23%
Values	Daily Returns

Philippine National Bank  vs.  Transpacific Broadband Group

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.

Transpacific Broadband

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Transpacific Broadband Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Transpacific Broadband may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Philippine National and Transpacific Broadband

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

The idea behind Philippine National Bank and Transpacific Broadband Group 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.