Correlation Between East West and Manila Electric

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

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

Diversification Opportunities for East West and Manila Electric

0.3

Correlation Coefficient

East West  Manila Electric

Weak diversification

The 3 months correlation between East and Manila is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding East West Banking and Manila Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manila Electric and East West 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 East West Banking 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 East West i.e., East West and Manila Electric go up and down completely randomly.

Pair Corralation between East West and Manila Electric

Assuming the 90 days trading horizon East West is expected to generate 3.58 times less return on investment than Manila Electric. But when comparing it to its historical volatility, East West Banking is 2.29 times less risky than Manila Electric. It trades about 0.02 of its potential returns per unit of risk. Manila Electric Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  48,600  in Manila Electric Co on October 25, 2024 and sell it today you would earn a total of  1,400  from holding Manila Electric Co or generate 2.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.31%
Values	Daily Returns

East West Banking  vs.  Manila Electric Co

East West Banking

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in East West Banking are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, East West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Manila Electric

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Manila Electric Co are ranked lower than 2 (%) 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 East West and Manila Electric

The main advantage of trading using opposite East West and Manila Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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 East West Banking 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.