Correlation Between Philippine Business and DDMP REIT

Can any of the company-specific risk be diversified away by investing in both Philippine Business and DDMP REIT 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 DDMP REIT 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 DDMP REIT, you can compare the effects of market volatilities on Philippine Business and DDMP REIT 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 DDMP REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Philippine Business and DDMP REIT.

Diversification Opportunities for Philippine Business and DDMP REIT

0.11

Correlation Coefficient

Philippine Business  DDMP REIT

Average diversification

The 3 months correlation between Philippine and DDMP is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and DDMP REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DDMP REIT 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 DDMP REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DDMP REIT has no effect on the direction of Philippine Business i.e., Philippine Business and DDMP REIT go up and down completely randomly.

Pair Corralation between Philippine Business and DDMP REIT

Assuming the 90 days trading horizon Philippine Business Bank is expected to generate 1.75 times more return on investment than DDMP REIT. However, Philippine Business is 1.75 times more volatile than DDMP REIT. It trades about 0.05 of its potential returns per unit of risk. DDMP REIT is currently generating about -0.01 per unit of risk. If you would invest  817.00  in Philippine Business Bank on October 5, 2024 and sell it today you would earn a total of  144.00  from holding Philippine Business Bank or generate 17.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.08%
Values	Daily Returns

Philippine Business Bank  vs.  DDMP REIT

Philippine Business Bank

Risk-Adjusted Performance

0 of 100

Solid

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 unsteady technical and fundamental indicators, Philippine Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

DDMP REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DDMP REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, DDMP REIT is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Philippine Business and DDMP REIT

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

The idea behind Philippine Business Bank and DDMP REIT 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.