Correlation Between PSMB and PSMG
Can any of the company-specific risk be diversified away by investing in both PSMB and PSMG 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 PSMB and PSMG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PSMB and PSMG, you can compare the effects of market volatilities on PSMB and PSMG 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 PSMB with a short position of PSMG. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSMB and PSMG.
Diversification Opportunities for PSMB and PSMG
Almost no diversification
The 3 months correlation between PSMB and PSMG is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding PSMB and PSMG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSMG and PSMB 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 PSMB are associated (or correlated) with PSMG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSMG has no effect on the direction of PSMB i.e., PSMB and PSMG go up and down completely randomly.
Pair Corralation between PSMB and PSMG
If you would invest 1,662 in PSMG on September 3, 2024 and sell it today you would earn a total of 0.00 from holding PSMG or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PSMB vs. PSMG
Performance |
| Timeline |
| PSMB |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| PSMG |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
PSMB and PSMG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PSMB and PSMG
The main advantage of trading using opposite PSMB and PSMG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PSMB position performs unexpectedly, PSMG 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 PSMG will offset losses from the drop in PSMG's long position.The idea behind PSMB and PSMG 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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