Correlation Between Bank Rakyat and First Ottawa

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

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

Diversification Opportunities for Bank Rakyat and First Ottawa

-0.68

Correlation Coefficient

Bank Rakyat  First Ottawa

Excellent diversification

The 3 months correlation between Bank and First is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and First Ottawa Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Ottawa Bancshares 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 First Ottawa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Ottawa Bancshares has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and First Ottawa go up and down completely randomly.

Pair Corralation between Bank Rakyat and First Ottawa

Assuming the 90 days horizon Bank Rakyat is expected to under-perform the First Ottawa. In addition to that, Bank Rakyat is 1.72 times more volatile than First Ottawa Bancshares. It trades about -0.01 of its total potential returns per unit of risk. First Ottawa Bancshares is currently generating about 0.18 per unit of volatility. If you would invest  13,000  in First Ottawa Bancshares on December 28, 2024 and sell it today you would earn a total of  2,700  from holding First Ottawa Bancshares or generate 20.77% 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.  First Ottawa Bancshares

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.

First Ottawa Bancshares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Ottawa Bancshares are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, First Ottawa sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Rakyat and First Ottawa

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

The idea behind Bank Rakyat and First Ottawa Bancshares 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.