Correlation Between Bank Negara and Hotel Fitra

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

Diversification Opportunities for Bank Negara and Hotel Fitra

-0.52

Correlation Coefficient

Bank Negara  Hotel Fitra

Excellent diversification

The 3 months correlation between Bank and Hotel is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Hotel Fitra International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hotel Fitra International 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 Hotel Fitra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hotel Fitra International has no effect on the direction of Bank Negara i.e., Bank Negara and Hotel Fitra go up and down completely randomly.

Pair Corralation between Bank Negara and Hotel Fitra

Assuming the 90 days trading horizon Bank Negara is expected to generate 78.25 times less return on investment than Hotel Fitra. But when comparing it to its historical volatility, Bank Negara Indonesia is 1.53 times less risky than Hotel Fitra. It trades about 0.0 of its potential returns per unit of risk. Hotel Fitra International is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  9,700  in Hotel Fitra International on December 29, 2024 and sell it today you would earn a total of  5,500  from holding Hotel Fitra International or generate 56.7% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  Hotel Fitra International

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.

Hotel Fitra International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hotel Fitra International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Hotel Fitra disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and Hotel Fitra

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

The idea behind Bank Negara Indonesia and Hotel Fitra 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.