Correlation Between Bank Net and Elang Mahkota

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

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

Diversification Opportunities for Bank Net and Elang Mahkota

-0.19

Correlation Coefficient

Bank Net  Elang Mahkota

Good diversification

The 3 months correlation between Bank and Elang is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Bank Net Indonesia and Elang Mahkota Teknologi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elang Mahkota Teknologi and Bank Net 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 Net Indonesia are associated (or correlated) with Elang Mahkota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elang Mahkota Teknologi has no effect on the direction of Bank Net i.e., Bank Net and Elang Mahkota go up and down completely randomly.

Pair Corralation between Bank Net and Elang Mahkota

Assuming the 90 days trading horizon Bank Net Indonesia is expected to generate 0.94 times more return on investment than Elang Mahkota. However, Bank Net Indonesia is 1.07 times less risky than Elang Mahkota. It trades about -0.03 of its potential returns per unit of risk. Elang Mahkota Teknologi is currently generating about -0.04 per unit of risk. If you would invest  145,000  in Bank Net Indonesia on September 4, 2024 and sell it today you would lose (65,000) from holding Bank Net Indonesia or give up 44.83% of portfolio value over 90 days.

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

Bank Net Indonesia  vs.  Elang Mahkota Teknologi

Bank Net Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Net Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Elang Mahkota Teknologi

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Net and Elang Mahkota

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

The idea behind Bank Net Indonesia and Elang Mahkota Teknologi 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.