Correlation Between THE PHILIPPINE and Cboe UK

Can any of the company-specific risk be diversified away by investing in both THE PHILIPPINE and Cboe UK 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 THE PHILIPPINE and Cboe UK into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between THE PHILIPPINE STOCK and Cboe UK Consumer, you can compare the effects of market volatilities on THE PHILIPPINE and Cboe UK 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 THE PHILIPPINE with a short position of Cboe UK. Check out your portfolio center. Please also check ongoing floating volatility patterns of THE PHILIPPINE and Cboe UK.

Diversification Opportunities for THE PHILIPPINE and Cboe UK

-0.49

Correlation Coefficient

THE PHILIPPINE  Cboe UK

Very good diversification

The 3 months correlation between THE and Cboe is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and Cboe UK Consumer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cboe UK Consumer and THE PHILIPPINE 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 THE PHILIPPINE STOCK are associated (or correlated) with Cboe UK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cboe UK Consumer has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and Cboe UK go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and Cboe UK

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to under-perform the Cboe UK. In addition to that, THE PHILIPPINE is 1.22 times more volatile than Cboe UK Consumer. It trades about -0.06 of its total potential returns per unit of risk. Cboe UK Consumer is currently generating about 0.28 per unit of volatility. If you would invest  2,770,118  in Cboe UK Consumer on September 1, 2024 and sell it today you would earn a total of  490,184  from holding Cboe UK Consumer or generate 17.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

THE PHILIPPINE STOCK  vs.  Cboe UK Consumer

Pair Trading with THE PHILIPPINE and Cboe UK

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

The idea behind THE PHILIPPINE STOCK and Cboe UK Consumer 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.