Correlation Between THE PHILIPPINE and National Reinsurance

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

Diversification Opportunities for THE PHILIPPINE and National Reinsurance

0.12

Correlation Coefficient

THE PHILIPPINE  National Reinsurance

Average diversification

The 3 months correlation between THE and National is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and National Reinsurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Reinsurance 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 National Reinsurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Reinsurance has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and National Reinsurance go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and National Reinsurance

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to generate 0.31 times more return on investment than National Reinsurance. However, THE PHILIPPINE STOCK is 3.22 times less risky than National Reinsurance. It trades about -0.08 of its potential returns per unit of risk. National Reinsurance is currently generating about -0.05 per unit of risk. If you would invest  655,039  in THE PHILIPPINE STOCK on December 29, 2024 and sell it today you would lose (40,295) from holding THE PHILIPPINE STOCK or give up 6.15% of portfolio value over 90 days.

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

THE PHILIPPINE STOCK  vs.  National Reinsurance

Pair Trading with THE PHILIPPINE and National Reinsurance

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

The idea behind THE PHILIPPINE STOCK and National Reinsurance 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.