Correlation Between Bank Rakyat and First Watch

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

Diversification Opportunities for Bank Rakyat and First Watch

0.37

Correlation Coefficient

Bank Rakyat  First Watch

Weak diversification

The 3 months correlation between Bank and First is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and First Watch go up and down completely randomly.

Pair Corralation between Bank Rakyat and First Watch

Assuming the 90 days horizon Bank Rakyat is expected to generate 1.03 times more return on investment than First Watch. However, Bank Rakyat is 1.03 times more volatile than First Watch Restaurant. It trades about -0.01 of its potential returns per unit of risk. First Watch Restaurant is currently generating about -0.01 per unit of risk. If you would invest  1,264  in Bank Rakyat on December 28, 2024 and sell it today you would lose (60.00) from holding Bank Rakyat or give up 4.75% of portfolio value over 90 days.

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

Bank Rakyat  vs.  First Watch Restaurant

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 Watch Restaurant

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Watch Restaurant has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Watch is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bank Rakyat and First Watch

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

The idea behind Bank Rakyat and First Watch Restaurant 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.