Correlation Between THE PHILIPPINE and DL Industries

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

Diversification Opportunities for THE PHILIPPINE and DL Industries

0.89

Correlation Coefficient

THE PHILIPPINE  DL Industries

Very poor diversification

The 3 months correlation between THE and DNL is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and DL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DL Industries 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 DL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DL Industries has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and DL Industries go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and DL Industries

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to under-perform the DL Industries. In addition to that, THE PHILIPPINE is 1.31 times more volatile than DL Industries. It trades about -0.21 of its total potential returns per unit of risk. DL Industries is currently generating about -0.06 per unit of volatility. If you would invest  610.00  in DL Industries on October 22, 2024 and sell it today you would lose (10.00) from holding DL Industries or give up 1.64% of portfolio value over 90 days.

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

THE PHILIPPINE STOCK  vs.  DL Industries

Pair Trading with THE PHILIPPINE and DL Industries

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

The idea behind THE PHILIPPINE STOCK and DL Industries 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.