Correlation Between THE PHILIPPINE and Cirtek Holdings

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

Diversification Opportunities for THE PHILIPPINE and Cirtek Holdings

0.04

Correlation Coefficient

THE PHILIPPINE  Cirtek Holdings

Significant diversification

The 3 months correlation between THE and Cirtek is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding THE PHILIPPINE STOCK and Cirtek Holdings Philippines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cirtek Holdings Phil 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 Cirtek Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cirtek Holdings Phil has no effect on the direction of THE PHILIPPINE i.e., THE PHILIPPINE and Cirtek Holdings go up and down completely randomly.

Pair Corralation between THE PHILIPPINE and Cirtek Holdings

Assuming the 90 days trading horizon THE PHILIPPINE STOCK is expected to generate 0.46 times more return on investment than Cirtek Holdings. However, THE PHILIPPINE STOCK is 2.15 times less risky than Cirtek Holdings. It trades about -0.22 of its potential returns per unit of risk. Cirtek Holdings Philippines is currently generating about -0.15 per unit of risk. If you would invest  734,324  in THE PHILIPPINE STOCK on September 27, 2024 and sell it today you would lose (80,422) from holding THE PHILIPPINE STOCK or give up 10.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	71.43%
Values	Daily Returns

THE PHILIPPINE STOCK  vs.  Cirtek Holdings Philippines

Pair Trading with THE PHILIPPINE and Cirtek Holdings

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

The idea behind THE PHILIPPINE STOCK and Cirtek Holdings Philippines 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.