Correlation Between Bank Cimb and Bank Permata

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

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

Diversification Opportunities for Bank Cimb and Bank Permata

-0.76

Correlation Coefficient

Bank Cimb  Bank Permata

Pay attention - limited upside

The 3 months correlation between Bank and Bank is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank Cimb Niaga and Bank Permata Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Permata Tbk and Bank Cimb 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 Cimb Niaga are associated (or correlated) with Bank Permata. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Permata Tbk has no effect on the direction of Bank Cimb i.e., Bank Cimb and Bank Permata go up and down completely randomly.

Pair Corralation between Bank Cimb and Bank Permata

Assuming the 90 days trading horizon Bank Cimb Niaga is expected to under-perform the Bank Permata. But the stock apears to be less risky and, when comparing its historical volatility, Bank Cimb Niaga is 3.59 times less risky than Bank Permata. The stock trades about -0.02 of its potential returns per unit of risk. The Bank Permata Tbk is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  94,500  in Bank Permata Tbk on December 29, 2024 and sell it today you would earn a total of  158,500  from holding Bank Permata Tbk or generate 167.72% return on investment over 90 days.

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

Bank Cimb Niaga  vs.  Bank Permata Tbk

Bank Cimb Niaga

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Cimb Niaga has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bank Cimb is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Bank Permata Tbk

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Permata Tbk are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bank Permata disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Cimb and Bank Permata

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

The idea behind Bank Cimb Niaga and Bank Permata Tbk 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.