Correlation Between Bank Negara and Bank Rakyat

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

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

Diversification Opportunities for Bank Negara and Bank Rakyat

0.84

Correlation Coefficient

Bank Negara  Bank Rakyat

Very poor diversification

The 3 months correlation between Bank and Bank is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Bank Rakyat Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Rakyat Indonesia and Bank Negara 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 Negara Indonesia are associated (or correlated) with Bank Rakyat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Rakyat Indonesia has no effect on the direction of Bank Negara i.e., Bank Negara and Bank Rakyat go up and down completely randomly.

Pair Corralation between Bank Negara and Bank Rakyat

Assuming the 90 days trading horizon Bank Negara Indonesia is expected to under-perform the Bank Rakyat. In addition to that, Bank Negara is 1.23 times more volatile than Bank Rakyat Indonesia. It trades about -0.06 of its total potential returns per unit of risk. Bank Rakyat Indonesia is currently generating about -0.06 per unit of volatility. If you would invest  421,644  in Bank Rakyat Indonesia on November 19, 2024 and sell it today you would lose (33,644) from holding Bank Rakyat Indonesia or give up 7.98% of portfolio value over 90 days.

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

Bank Negara Indonesia  vs.  Bank Rakyat Indonesia

Bank Negara Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Negara 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.

Bank Rakyat Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Rakyat 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.

Pair Trading with Bank Negara and Bank Rakyat

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

The idea behind Bank Negara Indonesia and Bank Rakyat Indonesia 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.