Correlation Between Ayala Corp and Manila Electric

Can any of the company-specific risk be diversified away by investing in both Ayala Corp and Manila Electric 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 Ayala Corp and Manila Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ayala Corp and Manila Electric Co, you can compare the effects of market volatilities on Ayala Corp and Manila Electric 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 Ayala Corp with a short position of Manila Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ayala Corp and Manila Electric.

Diversification Opportunities for Ayala Corp and Manila Electric

0.54

Correlation Coefficient

Ayala Corp  Manila Electric

Very weak diversification

The 3 months correlation between Ayala and Manila is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ayala Corp and Manila Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manila Electric and Ayala Corp 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 Ayala Corp are associated (or correlated) with Manila Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manila Electric has no effect on the direction of Ayala Corp i.e., Ayala Corp and Manila Electric go up and down completely randomly.

Pair Corralation between Ayala Corp and Manila Electric

Assuming the 90 days trading horizon Ayala Corp is expected to under-perform the Manila Electric. But the stock apears to be less risky and, when comparing its historical volatility, Ayala Corp is 2.08 times less risky than Manila Electric. The stock trades about -0.22 of its potential returns per unit of risk. The Manila Electric Co is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  48,200  in Manila Electric Co on October 10, 2024 and sell it today you would lose (400.00) from holding Manila Electric Co or give up 0.83% of portfolio value over 90 days.

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

Ayala Corp  vs.  Manila Electric Co

Ayala Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ayala Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Manila Electric

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Manila Electric Co 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, Manila Electric is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Ayala Corp and Manila Electric

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

The idea behind Ayala Corp and Manila Electric Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..