Correlation Between Philippine Business and RFM Corp

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

Diversification Opportunities for Philippine Business and RFM Corp

0.81

Correlation Coefficient

Philippine Business  RFM Corp

Very poor diversification

The 3 months correlation between Philippine and RFM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and RFM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RFM Corp 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 RFM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RFM Corp has no effect on the direction of Philippine Business i.e., Philippine Business and RFM Corp go up and down completely randomly.

Pair Corralation between Philippine Business and RFM Corp

Assuming the 90 days trading horizon Philippine Business Bank is expected to generate 1.03 times more return on investment than RFM Corp. However, Philippine Business is 1.03 times more volatile than RFM Corp. It trades about 0.21 of its potential returns per unit of risk. RFM Corp is currently generating about 0.07 per unit of risk. If you would invest  840.00  in Philippine Business Bank on October 5, 2024 and sell it today you would earn a total of  121.00  from holding Philippine Business Bank or generate 14.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.1%
Values	Daily Returns

Philippine Business Bank  vs.  RFM Corp

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.

RFM Corp

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days RFM Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, RFM Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Philippine Business and RFM Corp

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

The idea behind Philippine Business Bank and RFM Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.