Correlation Between Bank Rakyat and American Riviera

Can any of the company-specific risk be diversified away by investing in both Bank Rakyat and American Riviera 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 Bank Rakyat and American Riviera into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank Rakyat and American Riviera Bank, you can compare the effects of market volatilities on Bank Rakyat and American Riviera 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 Bank Rakyat with a short position of American Riviera. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Rakyat and American Riviera.

Diversification Opportunities for Bank Rakyat and American Riviera

-0.4

Correlation Coefficient

Bank Rakyat  American Riviera

Very good diversification

The 3 months correlation between Bank and American is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and American Riviera Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Riviera Bank and Bank Rakyat 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 Bank Rakyat are associated (or correlated) with American Riviera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Riviera Bank has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and American Riviera go up and down completely randomly.

Pair Corralation between Bank Rakyat and American Riviera

Assuming the 90 days horizon Bank Rakyat is expected to generate 5.67 times more return on investment than American Riviera. However, Bank Rakyat is 5.67 times more volatile than American Riviera Bank. It trades about 0.0 of its potential returns per unit of risk. American Riviera Bank is currently generating about -0.12 per unit of risk. If you would invest  1,264  in Bank Rakyat on December 29, 2024 and sell it today you would lose (38.00) from holding Bank Rakyat or give up 3.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank Rakyat  vs.  American Riviera Bank

Bank Rakyat

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Bank Rakyat is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Riviera Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Riviera Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, American Riviera is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bank Rakyat and American Riviera

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

The idea behind Bank Rakyat and American Riviera Bank 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.