Correlation Between Bank Negara and Trust Finance

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

Diversification Opportunities for Bank Negara and Trust Finance

-0.37

Correlation Coefficient

Bank Negara  Trust Finance

Very good diversification

The 3 months correlation between Bank and Trust is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Trust Finance Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trust Finance 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 Trust Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trust Finance Indonesia has no effect on the direction of Bank Negara i.e., Bank Negara and Trust Finance go up and down completely randomly.

Pair Corralation between Bank Negara and Trust Finance

Assuming the 90 days trading horizon Bank Negara Indonesia is expected to under-perform the Trust Finance. But the stock apears to be less risky and, when comparing its historical volatility, Bank Negara Indonesia is 1.04 times less risky than Trust Finance. The stock trades about -0.09 of its potential returns per unit of risk. The Trust Finance Indonesia is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  43,200  in Trust Finance Indonesia on September 4, 2024 and sell it today you would earn a total of  2,400  from holding Trust Finance Indonesia or generate 5.56% 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.  Trust Finance Indonesia

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 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.

Trust Finance Indonesia

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Trust Finance Indonesia are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Trust Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank Negara and Trust Finance

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

The idea behind Bank Negara Indonesia and Trust Finance 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.