Correlation Between Food Life and PT Bank

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

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

Diversification Opportunities for Food Life and PT Bank

-0.78

Correlation Coefficient

Food Life  PT Bank

Pay attention - limited upside

The 3 months correlation between Food and BYRA is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat and Food Life 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 Food Life Companies are associated (or correlated) with PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of Food Life i.e., Food Life and PT Bank go up and down completely randomly.

Pair Corralation between Food Life and PT Bank

Assuming the 90 days horizon Food Life is expected to generate 2.12 times less return on investment than PT Bank. But when comparing it to its historical volatility, Food Life Companies is 2.4 times less risky than PT Bank. It trades about 0.03 of its potential returns per unit of risk. PT Bank Rakyat is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  28.00  in PT Bank Rakyat on September 14, 2024 and sell it today you would lose (4.00) from holding PT Bank Rakyat or give up 14.29% of portfolio value over 90 days.

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

Food Life Companies  vs.  PT Bank Rakyat

Food Life Companies

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Food Life and PT Bank

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

The idea behind Food Life Companies and PT Bank Rakyat 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..