Correlation Between Bank Bumi and Bank Pembangunan

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

By analyzing existing cross correlation between Bank Bumi Arta and Bank Pembangunan Daerah, you can compare the effects of market volatilities on Bank Bumi and Bank Pembangunan 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 Bumi with a short position of Bank Pembangunan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Bumi and Bank Pembangunan.

Diversification Opportunities for Bank Bumi and Bank Pembangunan

-0.34

Correlation Coefficient

Bank Bumi  Bank Pembangunan

Very good diversification

The 3 months correlation between Bank and Bank is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Bank Bumi Arta and Bank Pembangunan Daerah in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Pembangunan Daerah and Bank Bumi 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 Bumi Arta are associated (or correlated) with Bank Pembangunan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Pembangunan Daerah has no effect on the direction of Bank Bumi i.e., Bank Bumi and Bank Pembangunan go up and down completely randomly.

Pair Corralation between Bank Bumi and Bank Pembangunan

Assuming the 90 days trading horizon Bank Bumi Arta is expected to under-perform the Bank Pembangunan. But the stock apears to be less risky and, when comparing its historical volatility, Bank Bumi Arta is 2.29 times less risky than Bank Pembangunan. The stock trades about -0.09 of its potential returns per unit of risk. The Bank Pembangunan Daerah is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,300  in Bank Pembangunan Daerah on September 1, 2024 and sell it today you would earn a total of  1,100  from holding Bank Pembangunan Daerah or generate 47.83% return on investment over 90 days.

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

Bank Bumi Arta  vs.  Bank Pembangunan Daerah

Bank Bumi Arta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Bumi Arta has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bank Pembangunan Daerah

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Pembangunan Daerah are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bank Pembangunan disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Bumi and Bank Pembangunan

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

The idea behind Bank Bumi Arta and Bank Pembangunan Daerah 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.