Correlation Between Bank Rakyat and International Paper

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

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

Diversification Opportunities for Bank Rakyat and International Paper

0.11

Correlation Coefficient

Bank Rakyat  International Paper

Average diversification

The 3 months correlation between Bank and International is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and International Paper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Paper 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 International Paper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Paper has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and International Paper go up and down completely randomly.

Pair Corralation between Bank Rakyat and International Paper

Assuming the 90 days horizon Bank Rakyat is expected to generate 27.73 times less return on investment than International Paper. But when comparing it to its historical volatility, Bank Rakyat is 1.6 times less risky than International Paper. It trades about 0.0 of its potential returns per unit of risk. International Paper is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,700  in International Paper on October 7, 2024 and sell it today you would lose (100.00) from holding International Paper or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	55.24%
Values	Daily Returns

Bank Rakyat  vs.  International Paper

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 fragile 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.

International Paper

Risk-Adjusted Performance

0 of 100

Good

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

Pair Trading with Bank Rakyat and International Paper

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

The idea behind Bank Rakyat and International Paper 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.