Correlation Between KL Technology and THE PHILIPPINE

Can any of the company-specific risk be diversified away by investing in both KL Technology and THE PHILIPPINE 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 KL Technology and THE PHILIPPINE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KL Technology and THE PHILIPPINE STOCK, you can compare the effects of market volatilities on KL Technology and THE PHILIPPINE 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 KL Technology with a short position of THE PHILIPPINE. Check out your portfolio center. Please also check ongoing floating volatility patterns of KL Technology and THE PHILIPPINE.

Diversification Opportunities for KL Technology and THE PHILIPPINE

0.2

Correlation Coefficient

KL Technology  THE PHILIPPINE

Modest diversification

The 3 months correlation between KLTE and THE is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and THE PHILIPPINE STOCK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on THE PHILIPPINE STOCK and KL Technology 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 KL Technology are associated (or correlated) with THE PHILIPPINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of THE PHILIPPINE STOCK has no effect on the direction of KL Technology i.e., KL Technology and THE PHILIPPINE go up and down completely randomly.

Pair Corralation between KL Technology and THE PHILIPPINE

Assuming the 90 days trading horizon KL Technology is expected to under-perform the THE PHILIPPINE. But the index apears to be less risky and, when comparing its historical volatility, KL Technology is 1.32 times less risky than THE PHILIPPINE. The index trades about -0.2 of its potential returns per unit of risk. The THE PHILIPPINE STOCK is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  634,989  in THE PHILIPPINE STOCK on November 19, 2024 and sell it today you would lose (28,856) from holding THE PHILIPPINE STOCK or give up 4.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

KL Technology  vs.  THE PHILIPPINE STOCK

Pair Trading with KL Technology and THE PHILIPPINE

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

The idea behind KL Technology and THE PHILIPPINE STOCK 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.