Correlation Between Metro Retail and BDO Unibank

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

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

Diversification Opportunities for Metro Retail and BDO Unibank

0.04

Correlation Coefficient

Metro Retail  BDO Unibank

Significant diversification

The 3 months correlation between Metro and BDO is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and BDO Unibank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BDO Unibank and Metro Retail 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 Metro Retail Stores 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 Metro Retail i.e., Metro Retail and BDO Unibank go up and down completely randomly.

Pair Corralation between Metro Retail and BDO Unibank

Assuming the 90 days trading horizon Metro Retail Stores is expected to generate 0.66 times more return on investment than BDO Unibank. However, Metro Retail Stores is 1.51 times less risky than BDO Unibank. It trades about 0.09 of its potential returns per unit of risk. BDO Unibank is currently generating about -0.01 per unit of risk. If you would invest  121.00  in Metro Retail Stores on December 1, 2024 and sell it today you would earn a total of  9.00  from holding Metro Retail Stores or generate 7.44% return on investment over 90 days.

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

Metro Retail Stores  vs.  BDO Unibank

Metro Retail Stores

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Metro Retail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BDO Unibank

Risk-Adjusted Performance

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 rather sound technical and fundamental indicators, BDO Unibank is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Metro Retail and BDO Unibank

The main advantage of trading using opposite Metro Retail and BDO Unibank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Metro Retail 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 Metro Retail Stores 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.