Correlation Between Basic Energy and DMCI Holdings

Can any of the company-specific risk be diversified away by investing in both Basic Energy and DMCI Holdings 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 Basic Energy and DMCI Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Basic Energy and DMCI Holdings

0.48

Correlation Coefficient

Basic Energy  DMCI Holdings

Very weak diversification

The 3 months correlation between Basic and DMCI is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Basic Energy Corp and DMCI Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DMCI Holdings and Basic Energy 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 Basic Energy Corp are associated (or correlated) with DMCI Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DMCI Holdings has no effect on the direction of Basic Energy i.e., Basic Energy and DMCI Holdings go up and down completely randomly.

Pair Corralation between Basic Energy and DMCI Holdings

Assuming the 90 days trading horizon Basic Energy Corp is expected to under-perform the DMCI Holdings. In addition to that, Basic Energy is 2.29 times more volatile than DMCI Holdings. It trades about -0.13 of its total potential returns per unit of risk. DMCI Holdings is currently generating about -0.11 per unit of volatility. If you would invest  1,120  in DMCI Holdings on October 8, 2024 and sell it today you would lose (30.00) from holding DMCI Holdings or give up 2.68% of portfolio value over 90 days.

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

Basic Energy Corp  vs.  DMCI Holdings

Basic Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

DMCI Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Basic Energy and DMCI Holdings

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

The idea behind Basic Energy Corp and DMCI Holdings 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.