Correlation Between THE PHILIPPINE and CROBEX

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

Diversification Opportunities for THE PHILIPPINE and CROBEX

-0.58

Correlation Coefficient

THE PHILIPPINE  CROBEX

Excellent diversification

The 3 months correlation between THE and CROBEX is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and CROBEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CROBEX 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 CROBEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CROBEX has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and CROBEX go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and CROBEX

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to under-perform the CROBEX. In addition to that, THE PHILIPPINE is 3.06 times more volatile than CROBEX. It trades about -0.06 of its total potential returns per unit of risk. CROBEX is currently generating about 0.31 per unit of volatility. If you would invest  294,209  in CROBEX on September 1, 2024 and sell it today you would earn a total of  21,955  from holding CROBEX or generate 7.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

THE PHILIPPINE STOCK  vs.  CROBEX

Pair Trading with THE PHILIPPINE and CROBEX

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

The idea behind THE PHILIPPINE STOCK and CROBEX 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.