Correlation Between Armada Mercantile and PHI

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

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

Diversification Opportunities for Armada Mercantile and PHI

-0.14

Correlation Coefficient

Armada Mercantile  PHI

Good diversification

The 3 months correlation between Armada and PHI is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Armada Mercantile and PHI Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHI Group and Armada Mercantile 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 Armada Mercantile are associated (or correlated) with PHI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHI Group has no effect on the direction of Armada Mercantile i.e., Armada Mercantile and PHI go up and down completely randomly.

Pair Corralation between Armada Mercantile and PHI

Assuming the 90 days horizon Armada Mercantile is expected to generate 3.51 times less return on investment than PHI. But when comparing it to its historical volatility, Armada Mercantile is 2.18 times less risky than PHI. It trades about 0.07 of its potential returns per unit of risk. PHI Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.02  in PHI Group on March 4, 2024 and sell it today you would earn a total of  0.01  from holding PHI Group or generate 50.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Armada Mercantile  vs.  PHI Group

Armada Mercantile

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Armada Mercantile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, Armada Mercantile reported solid returns over the last few months and may actually be approaching a breakup point.

PHI Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PHI Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward indicators, PHI disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Armada Mercantile and PHI

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

The idea behind Armada Mercantile and PHI Group 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.