Correlation Between Bank Rakyat and DCI Indonesia

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

Diversification Opportunities for Bank Rakyat and DCI Indonesia

-0.7

Correlation Coefficient

Bank Rakyat  DCI Indonesia

Excellent diversification

The 3 months correlation between Bank and DCI is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat Indonesia and DCI Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCI Indonesia Tbk 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 DCI Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCI Indonesia Tbk has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and DCI Indonesia go up and down completely randomly.

Pair Corralation between Bank Rakyat and DCI Indonesia

Assuming the 90 days trading horizon Bank Rakyat Indonesia is expected to under-perform the DCI Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Bank Rakyat Indonesia is 3.03 times less risky than DCI Indonesia. The stock trades about -0.02 of its potential returns per unit of risk. The DCI Indonesia Tbk is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  4,210,000  in DCI Indonesia Tbk on December 26, 2024 and sell it today you would earn a total of  11,890,000  from holding DCI Indonesia Tbk or generate 282.42% return on investment over 90 days.

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

Bank Rakyat Indonesia  vs.  DCI Indonesia Tbk

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.

DCI Indonesia Tbk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DCI Indonesia Tbk are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, DCI Indonesia disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Rakyat and DCI Indonesia

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

The idea behind Bank Rakyat Indonesia and DCI Indonesia Tbk 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.