Correlation Between PT Bank and NextSource Materials

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

Diversification Opportunities for PT Bank and NextSource Materials

0.77

Correlation Coefficient

PT Bank  NextSource Materials

Poor diversification

The 3 months correlation between BKRKF and NextSource is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and NextSource Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextSource Materials 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 NextSource Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextSource Materials has no effect on the direction of PT Bank i.e., PT Bank and NextSource Materials go up and down completely randomly.

Pair Corralation between PT Bank and NextSource Materials

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 1.47 times more return on investment than NextSource Materials. However, PT Bank is 1.47 times more volatile than NextSource Materials. It trades about -0.03 of its potential returns per unit of risk. NextSource Materials is currently generating about -0.09 per unit of risk. If you would invest  32.00  in PT Bank Rakyat on September 10, 2024 and sell it today you would lose (6.00) from holding PT Bank Rakyat or give up 18.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

PT Bank Rakyat  vs.  NextSource Materials

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 latest fragile performance, the Stock's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

NextSource Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextSource Materials 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 fundamental indicators 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.

Pair Trading with PT Bank and NextSource Materials

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

The idea behind PT Bank Rakyat and NextSource Materials 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.