Correlation Between Philippine Savings and SM Investments

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

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

Diversification Opportunities for Philippine Savings and SM Investments

0.65

Correlation Coefficient

Philippine Savings  SM Investments

Poor diversification

The 3 months correlation between Philippine and SM Investments is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Philippine Savings Bank 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 Philippine Savings 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 Savings Bank 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 Philippine Savings i.e., Philippine Savings and SM Investments go up and down completely randomly.

Pair Corralation between Philippine Savings and SM Investments

Assuming the 90 days trading horizon Philippine Savings is expected to generate 79.89 times less return on investment than SM Investments. But when comparing it to its historical volatility, Philippine Savings Bank is 1.31 times less risky than SM Investments. It trades about 0.0 of its potential returns per unit of risk. SM Investments Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  78,618  in SM Investments Corp on March 30, 2025 and sell it today you would earn a total of  9,382  from holding SM Investments Corp or generate 11.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.25%
Values	Daily Returns

Philippine Savings Bank  vs.  SM Investments Corp

Philippine Savings Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Philippine Savings Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Philippine Savings 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 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SM Investments exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Philippine Savings and SM Investments

The main advantage of trading using opposite Philippine Savings and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Philippine Savings 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 Philippine Savings Bank 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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.