Correlation Between DIVERSIFIED ROYALTY and PT Bank

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

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

Diversification Opportunities for DIVERSIFIED ROYALTY and PT Bank

-0.61

Correlation Coefficient

DIVERSIFIED ROYALTY  PT Bank

Excellent diversification

The 3 months correlation between DIVERSIFIED and PQ9 is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and PT Bank Mandiri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Mandiri and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY are associated (or correlated) with PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Mandiri has no effect on the direction of DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and PT Bank go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and PT Bank

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to generate 0.63 times more return on investment than PT Bank. However, DIVERSIFIED ROYALTY is 1.58 times less risky than PT Bank. It trades about 0.08 of its potential returns per unit of risk. PT Bank Mandiri is currently generating about -0.03 per unit of risk. If you would invest  181.00  in DIVERSIFIED ROYALTY on September 12, 2024 and sell it today you would earn a total of  22.00  from holding DIVERSIFIED ROYALTY or generate 12.15% return on investment over 90 days.

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

DIVERSIFIED ROYALTY  vs.  PT Bank Mandiri

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, DIVERSIFIED ROYALTY reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with DIVERSIFIED ROYALTY and PT Bank

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

The idea behind DIVERSIFIED ROYALTY and PT Bank Mandiri 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.