Correlation Between THE PHILIPPINE and LT

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

Diversification Opportunities for THE PHILIPPINE and LT

-0.86

Correlation Coefficient

THE PHILIPPINE  LT

Pay attention - limited upside

The 3 months correlation between THE and LT is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and LT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Group 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 LT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Group has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and LT go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and LT

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to under-perform the LT. In addition to that, THE PHILIPPINE is 1.08 times more volatile than LT Group. It trades about -0.15 of its total potential returns per unit of risk. LT Group is currently generating about 0.21 per unit of volatility. If you would invest  1,012  in LT Group on December 2, 2024 and sell it today you would earn a total of  150.00  from holding LT Group or generate 14.82% return on investment over 90 days.

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

THE PHILIPPINE STOCK  vs.  LT Group

Pair Trading with THE PHILIPPINE and LT

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

The idea behind THE PHILIPPINE STOCK and LT Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.