Correlation Between PT Bank and Hong Kong

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

Diversification Opportunities for PT Bank and Hong Kong

0.34

Correlation Coefficient

PT Bank  Hong Kong

Weak diversification

The 3 months correlation between BKRKF and Hong is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and Hong Kong Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Land 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 Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong Land has no effect on the direction of PT Bank i.e., PT Bank and Hong Kong go up and down completely randomly.

Pair Corralation between PT Bank and Hong Kong

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 5.65 times more return on investment than Hong Kong. However, PT Bank is 5.65 times more volatile than Hong Kong Land. It trades about 0.09 of its potential returns per unit of risk. Hong Kong Land is currently generating about 0.2 per unit of risk. If you would invest  22.00  in PT Bank Rakyat on November 28, 2024 and sell it today you would earn a total of  2.00  from holding PT Bank Rakyat or generate 9.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

PT Bank Rakyat  vs.  Hong Kong Land

PT Bank Rakyat

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bank Rakyat are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, PT Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Hong Kong Land

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Land are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking signals, Hong Kong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PT Bank and Hong Kong

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

The idea behind PT Bank Rakyat and Hong Kong Land 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.