Correlation Between PBSM and PSMC

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

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

Diversification Opportunities for PBSM and PSMC

0.0

Correlation Coefficient

PBSM  PSMC

Pay attention - limited upside

The 3 months correlation between PBSM and PSMC is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding PBSM and PSMC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSMC and PBSM 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 PBSM are associated (or correlated) with PSMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSMC has no effect on the direction of PBSM i.e., PBSM and PSMC go up and down completely randomly.

Pair Corralation between PBSM and PSMC

If you would invest (100.00) in PSMC on December 17, 2024 and sell it today you would earn a total of  100.00  from holding PSMC or generate -100.0% return on investment over 90 days.

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

PBSM  vs.  PSMC

PBSM

Risk-Adjusted Performance

Very Weak

Over the last 90 days PBSM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, PBSM is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

PSMC

Risk-Adjusted Performance

Very Weak

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

Pair Trading with PBSM and PSMC

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

The idea behind PBSM and PSMC 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.