Correlation Between Manila Electric and SM Investments

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

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

Diversification Opportunities for Manila Electric and SM Investments

-0.07

Correlation Coefficient

Manila Electric  SM Investments

Good diversification

The 3 months correlation between Manila and SM Investments is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Manila Electric Co and SM Investments Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments Corp and Manila Electric 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 Manila Electric Co are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments Corp has no effect on the direction of Manila Electric i.e., Manila Electric and SM Investments go up and down completely randomly.

Pair Corralation between Manila Electric and SM Investments

Assuming the 90 days trading horizon Manila Electric Co is expected to under-perform the SM Investments. In addition to that, Manila Electric is 1.44 times more volatile than SM Investments Corp. It trades about -0.06 of its total potential returns per unit of risk. SM Investments Corp is currently generating about 0.07 per unit of volatility. If you would invest  86,500  in SM Investments Corp on March 23, 2025 and sell it today you would earn a total of  1,300  from holding SM Investments Corp or generate 1.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Manila Electric Co  vs.  SM Investments Corp

Manila Electric

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Manila Electric Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Manila Electric is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SM Investments Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, SM Investments may actually be approaching a critical reversion point that can send shares even higher in July 2025.

Pair Trading with Manila Electric and SM Investments

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

The idea behind Manila Electric Co and SM Investments 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.