Correlation Between THE PHILIPPINE and Aboitiz Equity

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

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

Diversification Opportunities for THE PHILIPPINE and Aboitiz Equity

0.87

Correlation Coefficient

THE PHILIPPINE  Aboitiz Equity

Very poor diversification

The 3 months correlation between THE and Aboitiz is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and Aboitiz Equity Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aboitiz Equity Ventures and THE PHILIPPINE 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 THE PHILIPPINE STOCK are associated (or correlated) with Aboitiz Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aboitiz Equity Ventures has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and Aboitiz Equity go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and Aboitiz Equity

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to under-perform the Aboitiz Equity. But the index apears to be less risky and, when comparing its historical volatility, THE PHILIPPINE STOCK is 1.67 times less risky than Aboitiz Equity. The index trades about -0.18 of its potential returns per unit of risk. The Aboitiz Equity Ventures is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  3,750  in Aboitiz Equity Ventures on October 12, 2024 and sell it today you would lose (250.00) from holding Aboitiz Equity Ventures or give up 6.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.31%
Values	Daily Returns

THE PHILIPPINE STOCK  vs.  Aboitiz Equity Ventures

Pair Trading with THE PHILIPPINE and Aboitiz Equity

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

The idea behind THE PHILIPPINE STOCK and Aboitiz Equity Ventures 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.