Correlation Between Bank Capital and Bank Victoria

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

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

Diversification Opportunities for Bank Capital and Bank Victoria

0.24

Correlation Coefficient

Bank Capital  Bank Victoria

Modest diversification

The 3 months correlation between Bank and Bank is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Bank Capital Indonesia and Bank Victoria International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Victoria Intern and Bank Capital 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 Bank Capital Indonesia are associated (or correlated) with Bank Victoria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Victoria Intern has no effect on the direction of Bank Capital i.e., Bank Capital and Bank Victoria go up and down completely randomly.

Pair Corralation between Bank Capital and Bank Victoria

Assuming the 90 days trading horizon Bank Capital Indonesia is expected to generate 0.11 times more return on investment than Bank Victoria. However, Bank Capital Indonesia is 9.17 times less risky than Bank Victoria. It trades about 0.0 of its potential returns per unit of risk. Bank Victoria International is currently generating about -0.02 per unit of risk. If you would invest  13,100  in Bank Capital Indonesia on December 29, 2024 and sell it today you would earn a total of  0.00  from holding Bank Capital Indonesia or generate 0.0% return on investment over 90 days.

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

Bank Capital Indonesia  vs.  Bank Victoria International

Bank Capital Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Capital Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bank Capital is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Bank Victoria Intern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Victoria International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bank Victoria is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bank Capital and Bank Victoria

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

The idea behind Bank Capital Indonesia and Bank Victoria International 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.