Correlation Between PT Bank and Elmer Bancorp

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

Diversification Opportunities for PT Bank and Elmer Bancorp

-0.5

Correlation Coefficient

PT Bank  Elmer Bancorp

Very good diversification

The 3 months correlation between BKRKF and Elmer is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and Elmer Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elmer Bancorp 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 Elmer Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elmer Bancorp has no effect on the direction of PT Bank i.e., PT Bank and Elmer Bancorp go up and down completely randomly.

Pair Corralation between PT Bank and Elmer Bancorp

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 3.7 times more return on investment than Elmer Bancorp. However, PT Bank is 3.7 times more volatile than Elmer Bancorp. It trades about 0.02 of its potential returns per unit of risk. Elmer Bancorp is currently generating about 0.04 per unit of risk. If you would invest  28.00  in PT Bank Rakyat on September 28, 2024 and sell it today you would lose (3.00) from holding PT Bank Rakyat or give up 10.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.86%
Values	Daily Returns

PT Bank Rakyat  vs.  Elmer Bancorp

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

Elmer Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elmer Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Elmer Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PT Bank and Elmer Bancorp

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

The idea behind PT Bank Rakyat and Elmer Bancorp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.