Correlation Between THE PHILIPPINE and Lepanto Consolidated

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

Diversification Opportunities for THE PHILIPPINE and Lepanto Consolidated

0.01

Correlation Coefficient

THE PHILIPPINE  Lepanto Consolidated

Significant diversification

The 3 months correlation between THE and Lepanto is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and Lepanto Consolidated Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lepanto Consolidated 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 Lepanto Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lepanto Consolidated has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and Lepanto Consolidated go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and Lepanto Consolidated

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to under-perform the Lepanto Consolidated. But the index apears to be less risky and, when comparing its historical volatility, THE PHILIPPINE STOCK is 3.5 times less risky than Lepanto Consolidated. The index trades about -0.13 of its potential returns per unit of risk. The Lepanto Consolidated Mining is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6.70  in Lepanto Consolidated Mining on October 12, 2024 and sell it today you would earn a total of  0.20  from holding Lepanto Consolidated Mining or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	83.33%
Values	Daily Returns

THE PHILIPPINE STOCK  vs.  Lepanto Consolidated Mining

Pair Trading with THE PHILIPPINE and Lepanto Consolidated

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

The idea behind THE PHILIPPINE STOCK and Lepanto Consolidated Mining 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 Global Correlations module to find global opportunities by holding instruments from different markets.