Correlation Between First Philippine and BDO Unibank

Can any of the company-specific risk be diversified away by investing in both First Philippine and BDO Unibank 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 First Philippine and BDO Unibank into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for First Philippine and BDO Unibank

0.34

Correlation Coefficient

First Philippine  BDO Unibank

Weak diversification

The 3 months correlation between First and BDO is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding First Philippine Holdings and BDO Unibank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BDO Unibank and First 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 First Philippine Holdings are associated (or correlated) with BDO Unibank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BDO Unibank has no effect on the direction of First Philippine i.e., First Philippine and BDO Unibank go up and down completely randomly.

Pair Corralation between First Philippine and BDO Unibank

Assuming the 90 days trading horizon First Philippine Holdings is expected to generate 0.61 times more return on investment than BDO Unibank. However, First Philippine Holdings is 1.64 times less risky than BDO Unibank. It trades about 0.12 of its potential returns per unit of risk. BDO Unibank is currently generating about -0.13 per unit of risk. If you would invest  5,880  in First Philippine Holdings on October 12, 2024 and sell it today you would earn a total of  130.00  from holding First Philippine Holdings or generate 2.21% return on investment over 90 days.

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

First Philippine Holdings  vs.  BDO Unibank

First Philippine Holdings

Risk-Adjusted Performance

1 of 100

Weak

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

BDO Unibank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BDO Unibank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with First Philippine and BDO Unibank

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

The idea behind First Philippine Holdings and BDO Unibank 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.