Correlation Between Bank Negara and PT Soho

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

Diversification Opportunities for Bank Negara and PT Soho

-0.44

Correlation Coefficient

Bank Negara  PT Soho

Very good diversification

The 3 months correlation between Bank and SOHO is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and PT Soho Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Soho Global 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 PT Soho. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Soho Global has no effect on the direction of Bank Negara i.e., Bank Negara and PT Soho go up and down completely randomly.

Pair Corralation between Bank Negara and PT Soho

Assuming the 90 days trading horizon Bank Negara Indonesia is expected to under-perform the PT Soho. In addition to that, Bank Negara is 1.64 times more volatile than PT Soho Global. It trades about -0.13 of its total potential returns per unit of risk. PT Soho Global is currently generating about -0.2 per unit of volatility. If you would invest  69,500  in PT Soho Global on September 1, 2024 and sell it today you would lose (3,500) from holding PT Soho Global or give up 5.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Bank Negara Indonesia  vs.  PT Soho Global

Bank Negara Indonesia

Risk-Adjusted Performance

0 of 100

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.

PT Soho Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Soho Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, PT Soho 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 Negara and PT Soho

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

The idea behind Bank Negara Indonesia and PT Soho Global 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.