Correlation Between Metro Retail and First Philippine

Can any of the company-specific risk be diversified away by investing in both Metro Retail and First 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 Metro Retail and First Philippine 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 First Philippine Holdings, you can compare the effects of market volatilities on Metro Retail and First 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 Metro Retail with a short position of First Philippine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Metro Retail and First Philippine.

Diversification Opportunities for Metro Retail and First Philippine

-0.39

Correlation Coefficient

Metro Retail  First Philippine

Very good diversification

The 3 months correlation between Metro and First is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Metro Retail Stores and First Philippine Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Philippine Holdings 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 First Philippine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Philippine Holdings has no effect on the direction of Metro Retail i.e., Metro Retail and First Philippine go up and down completely randomly.

Pair Corralation between Metro Retail and First Philippine

Assuming the 90 days trading horizon Metro Retail Stores is expected to generate 1.75 times more return on investment than First Philippine. However, Metro Retail is 1.75 times more volatile than First Philippine Holdings. It trades about 0.07 of its potential returns per unit of risk. First Philippine Holdings is currently generating about -0.05 per unit of risk. If you would invest  120.00  in Metro Retail Stores on December 23, 2024 and sell it today you would earn a total of  9.00  from holding Metro Retail Stores or generate 7.5% return on investment over 90 days.

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

Metro Retail Stores  vs.  First Philippine Holdings

Metro Retail Stores

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Retail Stores are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Metro Retail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Philippine Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Philippine Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Metro Retail and First Philippine

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

The idea behind Metro Retail Stores and First Philippine Holdings 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.