Correlation Between Bank Rakyat and Central Japan

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

By analyzing existing cross correlation between Bank Rakyat and Central Japan Railway, you can compare the effects of market volatilities on Bank Rakyat and Central Japan 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 Central Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Rakyat and Central Japan.

Diversification Opportunities for Bank Rakyat and Central Japan

-0.73

Correlation Coefficient

Bank Rakyat  Central Japan

Pay attention - limited upside

The 3 months correlation between Bank and Central is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Central Japan go up and down completely randomly.

Pair Corralation between Bank Rakyat and Central Japan

Assuming the 90 days horizon Bank Rakyat is expected to generate 814.0 times less return on investment than Central Japan. In addition to that, Bank Rakyat is 2.15 times more volatile than Central Japan Railway. It trades about 0.0 of its total potential returns per unit of risk. Central Japan Railway is currently generating about 0.05 per unit of volatility. If you would invest  934.00  in Central Japan Railway on December 29, 2024 and sell it today you would earn a total of  41.00  from holding Central Japan Railway or generate 4.39% return on investment over 90 days.

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

Bank Rakyat  vs.  Central Japan Railway

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.

Central Japan Railway

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Central Japan Railway are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Central Japan is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank Rakyat and Central Japan

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

The idea behind Bank Rakyat and Central Japan Railway 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.