Correlation Between Liberty Flour and Philippine Savings

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

By analyzing existing cross correlation between Liberty Flour Mills and Philippine Savings Bank, you can compare the effects of market volatilities on Liberty Flour and Philippine Savings 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 Liberty Flour with a short position of Philippine Savings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liberty Flour and Philippine Savings.

Diversification Opportunities for Liberty Flour and Philippine Savings

-0.32

Correlation Coefficient

Liberty Flour  Philippine Savings

Very good diversification

The 3 months correlation between Liberty and Philippine is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Flour Mills and Philippine Savings Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philippine Savings Bank and Liberty Flour 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 Liberty Flour Mills are associated (or correlated) with Philippine Savings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philippine Savings Bank has no effect on the direction of Liberty Flour i.e., Liberty Flour and Philippine Savings go up and down completely randomly.

Pair Corralation between Liberty Flour and Philippine Savings

Assuming the 90 days trading horizon Liberty Flour Mills is expected to generate 4.96 times more return on investment than Philippine Savings. However, Liberty Flour is 4.96 times more volatile than Philippine Savings Bank. It trades about 0.06 of its potential returns per unit of risk. Philippine Savings Bank is currently generating about -0.01 per unit of risk. If you would invest  1,476  in Liberty Flour Mills on October 20, 2024 and sell it today you would earn a total of  122.00  from holding Liberty Flour Mills or generate 8.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	67.8%
Values	Daily Returns

Liberty Flour Mills  vs.  Philippine Savings Bank

Liberty Flour Mills

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Flour Mills are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Liberty Flour exhibited solid returns over the last few months and may actually be approaching a breakup point.

Philippine Savings Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Liberty Flour and Philippine Savings

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

The idea behind Liberty Flour Mills and Philippine Savings Bank 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.