Correlation Between PT Bank and Swire Pacific

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

Diversification Opportunities for PT Bank and Swire Pacific

0.35

Correlation Coefficient

PT Bank  Swire Pacific

Weak diversification

The 3 months correlation between BKRKF and Swire is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and Swire Pacific Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific 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 Swire Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Pacific has no effect on the direction of PT Bank i.e., PT Bank and Swire Pacific go up and down completely randomly.

Pair Corralation between PT Bank and Swire Pacific

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 8.63 times more return on investment than Swire Pacific. However, PT Bank is 8.63 times more volatile than Swire Pacific Ltd. It trades about 0.05 of its potential returns per unit of risk. Swire Pacific Ltd is currently generating about -0.04 per unit of risk. If you would invest  23.00  in PT Bank Rakyat on December 28, 2024 and sell it today you would earn a total of  0.00  from holding PT Bank Rakyat or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

PT Bank Rakyat  vs.  Swire Pacific Ltd

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.

Swire Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swire Pacific Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Swire Pacific 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 Swire Pacific

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

The idea behind PT Bank Rakyat and Swire Pacific Ltd 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.