Correlation Between Philippine Business and Bright Kindle

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

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

Diversification Opportunities for Philippine Business and Bright Kindle

0.57

Correlation Coefficient

Philippine Business  Bright Kindle

Very weak diversification

The 3 months correlation between Philippine and Bright is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and Bright Kindle Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Kindle Resources and Philippine Business 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 Philippine Business Bank are associated (or correlated) with Bright Kindle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Kindle Resources has no effect on the direction of Philippine Business i.e., Philippine Business and Bright Kindle go up and down completely randomly.

Pair Corralation between Philippine Business and Bright Kindle

Assuming the 90 days trading horizon Philippine Business is expected to generate 39.67 times less return on investment than Bright Kindle. But when comparing it to its historical volatility, Philippine Business Bank is 2.91 times less risky than Bright Kindle. It trades about 0.01 of its potential returns per unit of risk. Bright Kindle Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  68.00  in Bright Kindle Resources on November 29, 2024 and sell it today you would earn a total of  41.00  from holding Bright Kindle Resources or generate 60.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	87.27%
Values	Daily Returns

Philippine Business Bank  vs.  Bright Kindle Resources

Philippine Business Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Philippine Business 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 Business is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bright Kindle Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Kindle Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Bright Kindle exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Philippine Business and Bright Kindle

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

The idea behind Philippine Business Bank and Bright Kindle Resources 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..