Correlation Between SM Investments and Philippine Seven

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

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

Diversification Opportunities for SM Investments and Philippine Seven

0.66

Correlation Coefficient

SM Investments  Philippine Seven

Poor diversification

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

Pair Corralation between SM Investments and Philippine Seven

Assuming the 90 days trading horizon SM Investments Corp is expected to generate 0.68 times more return on investment than Philippine Seven. However, SM Investments Corp is 1.48 times less risky than Philippine Seven. It trades about -0.12 of its potential returns per unit of risk. Philippine Seven Corp is currently generating about -0.09 per unit of risk. If you would invest  89,900  in SM Investments Corp on December 27, 2024 and sell it today you would lose (11,250) from holding SM Investments Corp or give up 12.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

SM Investments Corp  vs.  Philippine Seven Corp

SM Investments Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Philippine Seven Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Philippine Seven Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with SM Investments and Philippine Seven

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

The idea behind SM Investments Corp and Philippine Seven Corp 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.