Correlation Between Bank Rakyat and Exchange Bank

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

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

Diversification Opportunities for Bank Rakyat and Exchange Bank

-0.39

Correlation Coefficient

Bank Rakyat  Exchange Bank

Very good diversification

The 3 months correlation between Bank and Exchange is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and Exchange Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange 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 Exchange Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bank has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Exchange Bank go up and down completely randomly.

Pair Corralation between Bank Rakyat and Exchange Bank

Assuming the 90 days horizon Bank Rakyat is expected to under-perform the Exchange Bank. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Rakyat is 1.37 times less risky than Exchange Bank. The pink sheet trades about -0.25 of its potential returns per unit of risk. The Exchange Bank is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  11,200  in Exchange Bank on October 9, 2024 and sell it today you would lose (600.00) from holding Exchange Bank or give up 5.36% of portfolio value over 90 days.

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

Bank Rakyat  vs.  Exchange Bank

Bank Rakyat

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Exchange Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exchange Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Exchange Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Bank Rakyat and Exchange Bank

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

The idea behind Bank Rakyat and Exchange 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.