Correlation Between Shinhan Financial and Metro Pacific

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

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

Diversification Opportunities for Shinhan Financial and Metro Pacific

-0.66

Correlation Coefficient

Shinhan Financial  Metro Pacific

Excellent diversification

The 3 months correlation between Shinhan and Metro is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and Metro Pacific Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Pacific Investments and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with Metro Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Pacific Investments has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and Metro Pacific go up and down completely randomly.

Pair Corralation between Shinhan Financial and Metro Pacific

Considering the 90-day investment horizon Shinhan Financial is expected to generate 12.35 times less return on investment than Metro Pacific. But when comparing it to its historical volatility, Shinhan Financial Group is 6.31 times less risky than Metro Pacific. It trades about 0.05 of its potential returns per unit of risk. Metro Pacific Investments is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4.90  in Metro Pacific Investments on September 4, 2024 and sell it today you would earn a total of  5.10  from holding Metro Pacific Investments or generate 104.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	30.71%
Values	Daily Returns

Shinhan Financial Group  vs.  Metro Pacific Investments

Shinhan Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Shinhan Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Metro Pacific Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Metro Pacific Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Metro Pacific is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shinhan Financial and Metro Pacific

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

The idea behind Shinhan Financial Group and Metro Pacific Investments 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.