Correlation Between PSMM and PSMC

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

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

Diversification Opportunities for PSMM and PSMC

0.88

Correlation Coefficient

PSMM  PSMC

Very poor diversification

The 3 months correlation between PSMM and PSMC is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding PSMM and PSMC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSMC and PSMM 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 PSMM are associated (or correlated) with PSMC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSMC has no effect on the direction of PSMM i.e., PSMM and PSMC go up and down completely randomly.

Pair Corralation between PSMM and PSMC

If you would invest  1,206  in PSMC on October 25, 2024 and sell it today you would earn a total of  0.00  from holding PSMC or generate 0.0% return on investment over 90 days.

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

PSMM  vs.  PSMC

PSMM

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with PSMM and PSMC

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

The idea behind PSMM and PSMC 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 CEOs Directory module to screen CEOs from public companies around the world.