Correlation Between Algonquin Power and PT Bank

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

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

Diversification Opportunities for Algonquin Power and PT Bank

0.39

Correlation Coefficient

Algonquin Power  PT Bank

Weak diversification

The 3 months correlation between Algonquin and PQ9 is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and PT Bank Mandiri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Mandiri and Algonquin Power 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 Algonquin Power Utilities 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 Mandiri has no effect on the direction of Algonquin Power i.e., Algonquin Power and PT Bank go up and down completely randomly.

Pair Corralation between Algonquin Power and PT Bank

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the PT Bank. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 4.04 times less risky than PT Bank. The stock trades about -0.15 of its potential returns per unit of risk. The PT Bank Mandiri is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  36.00  in PT Bank Mandiri on September 17, 2024 and sell it today you would lose (2.00) from holding PT Bank Mandiri or give up 5.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Algonquin Power Utilities  vs.  PT Bank Mandiri

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Algonquin Power and PT Bank

The main advantage of trading using opposite Algonquin Power and PT Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power 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 Algonquin Power Utilities and PT Bank Mandiri 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.