Correlation Between PT Bank and Ayala Corp

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

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

Diversification Opportunities for PT Bank and Ayala Corp

-0.47

Correlation Coefficient

PT Bank  Ayala Corp

Very good diversification

The 3 months correlation between BKRKF and Ayala is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and Ayala Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ayala Corp ADR and PT Bank 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 PT Bank Rakyat are associated (or correlated) with Ayala Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ayala Corp ADR has no effect on the direction of PT Bank i.e., PT Bank and Ayala Corp go up and down completely randomly.

Pair Corralation between PT Bank and Ayala Corp

Assuming the 90 days horizon PT Bank is expected to generate 2.35 times less return on investment than Ayala Corp. But when comparing it to its historical volatility, PT Bank Rakyat is 1.08 times less risky than Ayala Corp. It trades about 0.02 of its potential returns per unit of risk. Ayala Corp ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Ayala Corp ADR on September 3, 2024 and sell it today you would earn a total of  185.00  from holding Ayala Corp ADR or generate 18.78% return on investment over 90 days.

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

PT Bank Rakyat  vs.  Ayala Corp ADR

PT Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Ayala Corp ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ayala Corp ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Ayala Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Bank and Ayala Corp

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

The idea behind PT Bank Rakyat and Ayala Corp ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.