Correlation Between PSMC and PBSM

Can any of the company-specific risk be diversified away by investing in both PSMC and PBSM 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 PSMC and PBSM into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PSMC and PBSM, you can compare the effects of market volatilities on PSMC and PBSM 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 PSMC with a short position of PBSM. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSMC and PBSM.

Diversification Opportunities for PSMC and PBSM

0.18

Correlation Coefficient

PSMC  PBSM

Average diversification

The 3 months correlation between PSMC and PBSM is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding PSMC and PBSM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PBSM and PSMC 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 PSMC are associated (or correlated) with PBSM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PBSM has no effect on the direction of PSMC i.e., PSMC and PBSM go up and down completely randomly.

Pair Corralation between PSMC and PBSM

If you would invest  3,192  in PBSM on October 25, 2024 and sell it today you would earn a total of  0.00  from holding PBSM or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	50.0%
Values	Daily Returns

PSMC  vs.  PBSM

PSMC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSMC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, PSMC is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

PBSM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PBSM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, PBSM is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with PSMC and PBSM

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

The idea behind PSMC and PBSM 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..