Correlation Between Bank Pembangunan and Indosat Tbk

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

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

Diversification Opportunities for Bank Pembangunan and Indosat Tbk

-0.8

Correlation Coefficient

Bank Pembangunan  Indosat Tbk

Pay attention - limited upside

The 3 months correlation between Bank and Indosat is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Pembangunan Daerah and Indosat Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indosat Tbk and Bank Pembangunan 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 Pembangunan Daerah are associated (or correlated) with Indosat Tbk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indosat Tbk has no effect on the direction of Bank Pembangunan i.e., Bank Pembangunan and Indosat Tbk go up and down completely randomly.

Pair Corralation between Bank Pembangunan and Indosat Tbk

Assuming the 90 days trading horizon Bank Pembangunan Daerah is expected to under-perform the Indosat Tbk. But the stock apears to be less risky and, when comparing its historical volatility, Bank Pembangunan Daerah is 1.29 times less risky than Indosat Tbk. The stock trades about -0.02 of its potential returns per unit of risk. The Indosat Tbk is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  522,577  in Indosat Tbk on September 4, 2024 and sell it today you would lose (270,577) from holding Indosat Tbk or give up 51.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Bank Pembangunan Daerah  vs.  Indosat Tbk

Bank Pembangunan Daerah

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Pembangunan Daerah are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bank Pembangunan disclosed solid returns over the last few months and may actually be approaching a breakup point.

Indosat Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indosat Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bank Pembangunan and Indosat Tbk

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

The idea behind Bank Pembangunan Daerah and Indosat 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.