Correlation Between Philippine Business and National Reinsurance

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

Diversification Opportunities for Philippine Business and National Reinsurance

-0.38

Correlation Coefficient

Philippine Business  National Reinsurance

Very good diversification

The 3 months correlation between Philippine and National is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and National Reinsurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Reinsurance 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 National Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Reinsurance has no effect on the direction of Philippine Business i.e., Philippine Business and National Reinsurance go up and down completely randomly.

Pair Corralation between Philippine Business and National Reinsurance

Assuming the 90 days trading horizon Philippine Business Bank is expected to generate 0.21 times more return on investment than National Reinsurance. However, Philippine Business Bank is 4.78 times less risky than National Reinsurance. It trades about 0.1 of its potential returns per unit of risk. National Reinsurance is currently generating about -0.03 per unit of risk. If you would invest  916.00  in Philippine Business Bank on September 16, 2024 and sell it today you would earn a total of  24.00  from holding Philippine Business Bank or generate 2.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Philippine Business Bank  vs.  National Reinsurance

Philippine Business Bank

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine Business Bank are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. 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.

National Reinsurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Reinsurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Philippine Business and National Reinsurance

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

The idea behind Philippine Business Bank and National Reinsurance 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .