Correlation Between Bank Rakyat and Tunas Baru

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

Diversification Opportunities for Bank Rakyat and Tunas Baru

0.79

Correlation Coefficient

Bank Rakyat  Tunas Baru

Poor diversification

The 3 months correlation between Bank and Tunas is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat Indonesia and Tunas Baru Lampung in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tunas Baru Lampung 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 Tunas Baru. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tunas Baru Lampung has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Tunas Baru go up and down completely randomly.

Pair Corralation between Bank Rakyat and Tunas Baru

Assuming the 90 days trading horizon Bank Rakyat Indonesia is expected to generate 1.74 times more return on investment than Tunas Baru. However, Bank Rakyat is 1.74 times more volatile than Tunas Baru Lampung. It trades about 0.01 of its potential returns per unit of risk. Tunas Baru Lampung is currently generating about -0.05 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.  Tunas Baru Lampung

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.

Tunas Baru Lampung

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tunas Baru Lampung has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Tunas Baru 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 Rakyat and Tunas Baru

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

The idea behind Bank Rakyat Indonesia and Tunas Baru Lampung 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.