Correlation Between Philippine Savings and SM Investments

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

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

Diversification Opportunities for Philippine Savings and SM Investments

-0.24

Correlation Coefficient

Philippine Savings  SM Investments

Very good diversification

The 3 months correlation between Philippine and SM Investments is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Savings Bank and SM Investments Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments Corp and Philippine Savings 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 Savings Bank are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments Corp has no effect on the direction of Philippine Savings i.e., Philippine Savings and SM Investments go up and down completely randomly.

Pair Corralation between Philippine Savings and SM Investments

Assuming the 90 days trading horizon Philippine Savings Bank is expected to generate 1.15 times more return on investment than SM Investments. However, Philippine Savings is 1.15 times more volatile than SM Investments Corp. It trades about 0.03 of its potential returns per unit of risk. SM Investments Corp is currently generating about 0.01 per unit of risk. If you would invest  5,124  in Philippine Savings Bank on September 18, 2024 and sell it today you would earn a total of  876.00  from holding Philippine Savings Bank or generate 17.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.74%
Values	Daily Returns

Philippine Savings Bank  vs.  SM Investments Corp

Philippine Savings Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Philippine Savings Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Philippine Savings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Philippine Savings and SM Investments

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

The idea behind Philippine Savings Bank and SM Investments 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.