Correlation Between PBDM and PSMG

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

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

Diversification Opportunities for PBDM and PSMG

0.51

Correlation Coefficient

PBDM  PSMG

Very weak diversification

The 3 months correlation between PBDM and PSMG is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding PBDM and PSMG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSMG and PBDM 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 PBDM 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 PBDM i.e., PBDM and PSMG go up and down completely randomly.

Pair Corralation between PBDM and PSMG

If you would invest  1,662  in PSMG on September 19, 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	Weak
Accuracy	100.0%
Values	Daily Returns

PBDM  vs.  PSMG

PBDM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PBDM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, PBDM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

PSMG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSMG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, PSMG is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PBDM and PSMG

The main advantage of trading using opposite PBDM and PSMG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PBDM 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 PBDM 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.