Correlation Between Philippine Business and Century Pacific
Can any of the company-specific risk be diversified away by investing in both Philippine Business and Century 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 Philippine Business and Century Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Philippine Business Bank and Century Pacific Food, you can compare the effects of market volatilities on Philippine Business and Century 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 Philippine Business with a short position of Century Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Philippine Business and Century Pacific.
Diversification Opportunities for Philippine Business and Century Pacific
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Philippine and Century is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Business Bank and Century Pacific Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Pacific Food and Philippine Business 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 Philippine Business Bank are associated (or correlated) with Century Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Pacific Food has no effect on the direction of Philippine Business i.e., Philippine Business and Century Pacific go up and down completely randomly.
Pair Corralation between Philippine Business and Century Pacific
Assuming the 90 days trading horizon Philippine Business is expected to generate 1.21 times less return on investment than Century Pacific. But when comparing it to its historical volatility, Philippine Business Bank is 1.06 times less risky than Century Pacific. It trades about 0.12 of its potential returns per unit of risk. Century Pacific Food is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 3,600 in Century Pacific Food on August 28, 2024 and sell it today you would earn a total of 550.00 from holding Century Pacific Food or generate 15.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 87.3% |
| Values | Daily Returns |
Philippine Business Bank vs. Century Pacific Food
Performance |
| Timeline |
| Philippine Business Bank |
| Century Pacific Food |
Philippine Business and Century Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Philippine Business and Century Pacific
The main advantage of trading using opposite Philippine Business and Century Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philippine Business position performs unexpectedly, Century 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 Century Pacific will offset losses from the drop in Century Pacific's long position.The idea behind Philippine Business Bank and Century Pacific Food 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.| Century Pacific vs. RFM Corp | Century Pacific vs. Axelum Resources Corp | Century Pacific vs. Swift Foods |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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