Correlation Between PT Bank and Merchants Marine

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

Diversification Opportunities for PT Bank and Merchants Marine

0.49

Correlation Coefficient

PT Bank  Merchants Marine

Very weak diversification

The 3 months correlation between BKRKF and Merchants is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and Merchants Marine Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants Marine 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 Merchants Marine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants Marine Bancorp has no effect on the direction of PT Bank i.e., PT Bank and Merchants Marine go up and down completely randomly.

Pair Corralation between PT Bank and Merchants Marine

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 12.82 times more return on investment than Merchants Marine. However, PT Bank is 12.82 times more volatile than Merchants Marine Bancorp. It trades about 0.04 of its potential returns per unit of risk. Merchants Marine Bancorp is currently generating about -0.03 per unit of risk. If you would invest  25.00  in PT Bank Rakyat on December 4, 2024 and sell it today you would lose (1.00) from holding PT Bank Rakyat or give up 4.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	86.44%
Values	Daily Returns

PT Bank Rakyat  vs.  Merchants Marine Bancorp

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 weak forward-looking signals, PT Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Merchants Marine Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merchants Marine Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Merchants Marine 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 Merchants Marine

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

The idea behind PT Bank Rakyat and Merchants Marine 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.