Correlation Between PT Bank and CNB

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

Diversification Opportunities for PT Bank and CNB

0.14

Correlation Coefficient

PT Bank  CNB

Average diversification

The 3 months correlation between BKRKF and CNB is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and CNB Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNB Corporation 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 CNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNB Corporation has no effect on the direction of PT Bank i.e., PT Bank and CNB go up and down completely randomly.

Pair Corralation between PT Bank and CNB

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 9.24 times more return on investment than CNB. However, PT Bank is 9.24 times more volatile than CNB Corporation. It trades about 0.01 of its potential returns per unit of risk. CNB Corporation is currently generating about 0.07 per unit of risk. If you would invest  23.00  in PT Bank Rakyat on December 26, 2024 and sell it today you would lose (4.00) from holding PT Bank Rakyat or give up 17.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	89.09%
Values	Daily Returns

PT Bank Rakyat  vs.  CNB Corp.

PT Bank Rakyat

Risk-Adjusted Performance

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 nearly stable forward-looking signals, PT Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CNB Corporation

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CNB Corporation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, CNB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PT Bank and CNB

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

The idea behind PT Bank Rakyat and CNB Corporation 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.