Correlation Between Bank Negara and Capital Financial

Can any of the company-specific risk be diversified away by investing in both Bank Negara and Capital Financial 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 Capital Financial 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 Capital Financial Indonesia, you can compare the effects of market volatilities on Bank Negara and Capital Financial 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 Capital Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Negara and Capital Financial.

Diversification Opportunities for Bank Negara and Capital Financial

-0.22

Correlation Coefficient

Bank Negara  Capital Financial

Very good diversification

The 3 months correlation between Bank and Capital is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Capital Financial Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Financial 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 Capital Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Financial has no effect on the direction of Bank Negara i.e., Bank Negara and Capital Financial go up and down completely randomly.

Pair Corralation between Bank Negara and Capital Financial

Assuming the 90 days trading horizon Bank Negara is expected to generate 47.53 times less return on investment than Capital Financial. In addition to that, Bank Negara is 1.4 times more volatile than Capital Financial Indonesia. It trades about 0.0 of its total potential returns per unit of risk. Capital Financial Indonesia is currently generating about 0.22 per unit of volatility. If you would invest  56,500  in Capital Financial Indonesia on December 30, 2024 and sell it today you would earn a total of  19,500  from holding Capital Financial Indonesia or generate 34.51% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  Capital Financial 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 quite persistent forward-looking signals, Bank Negara is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Capital Financial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Capital Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and Capital Financial

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

The idea behind Bank Negara Indonesia and Capital Financial 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.