Correlation Between Philippine National and East West

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

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

Diversification Opportunities for Philippine National and East West

0.92

Correlation Coefficient

Philippine National  East West

Almost no diversification

The 3 months correlation between Philippine and East is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Philippine National Bank and East West Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East West Banking and Philippine National 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 National Bank are associated (or correlated) with East West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East West Banking has no effect on the direction of Philippine National i.e., Philippine National and East West go up and down completely randomly.

Pair Corralation between Philippine National and East West

Assuming the 90 days trading horizon Philippine National Bank is expected to generate 1.78 times more return on investment than East West. However, Philippine National is 1.78 times more volatile than East West Banking. It trades about 0.1 of its potential returns per unit of risk. East West Banking is currently generating about 0.13 per unit of risk. If you would invest  2,300  in Philippine National Bank on September 2, 2024 and sell it today you would earn a total of  330.00  from holding Philippine National Bank or generate 14.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Philippine National Bank  vs.  East West Banking

Philippine National Bank

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine National Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Philippine National exhibited solid returns over the last few months and may actually be approaching a breakup point.

East West Banking

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in East West Banking are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, East West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Philippine National and East West

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

The idea behind Philippine National Bank and East West Banking 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..