Correlation Between Manila Electric and Ayala Corp

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

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

Diversification Opportunities for Manila Electric and Ayala Corp

0.15

Correlation Coefficient

Manila Electric  Ayala Corp

Average diversification

The 3 months correlation between Manila and Ayala is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Manila Electric Co and Ayala Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ayala Corp and Manila Electric 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 Manila Electric Co are associated (or correlated) with Ayala Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ayala Corp has no effect on the direction of Manila Electric i.e., Manila Electric and Ayala Corp go up and down completely randomly.

Pair Corralation between Manila Electric and Ayala Corp

Assuming the 90 days trading horizon Manila Electric Co is expected to generate 0.87 times more return on investment than Ayala Corp. However, Manila Electric Co is 1.15 times less risky than Ayala Corp. It trades about -0.18 of its potential returns per unit of risk. Ayala Corp is currently generating about -0.17 per unit of risk. If you would invest  48,600  in Manila Electric Co on September 23, 2024 and sell it today you would lose (3,400) from holding Manila Electric Co or give up 7.0% of portfolio value over 90 days.

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

Manila Electric Co  vs.  Ayala Corp

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.

Ayala Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ayala Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Manila Electric and Ayala Corp

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

The idea behind Manila Electric Co and Ayala Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.