Correlation Between Bank Rakyat and Bank Central

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

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

Diversification Opportunities for Bank Rakyat and Bank Central

0.75

Correlation Coefficient

Bank Rakyat  Bank Central

Poor diversification

The 3 months correlation between Bank and Bank is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat Indonesia and Bank Central Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Central Asia and Bank Rakyat 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 Rakyat Indonesia are associated (or correlated) with Bank Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Central Asia has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Bank Central go up and down completely randomly.

Pair Corralation between Bank Rakyat and Bank Central

Assuming the 90 days trading horizon Bank Rakyat Indonesia is expected to generate 1.5 times more return on investment than Bank Central. However, Bank Rakyat is 1.5 times more volatile than Bank Central Asia. It trades about 0.01 of its potential returns per unit of risk. Bank Central Asia is currently generating about -0.07 per unit of risk. If you would invest  408,000  in Bank Rakyat Indonesia on December 29, 2024 and sell it today you would lose (3,000) from holding Bank Rakyat Indonesia or give up 0.74% of portfolio value over 90 days.

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

Bank Rakyat Indonesia  vs.  Bank Central Asia

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

Bank Central Asia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Central Asia 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 Rakyat and Bank Central

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

The idea behind Bank Rakyat Indonesia and Bank Central Asia 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.