Correlation Between Bank Cimb and DCI Indonesia

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

Diversification Opportunities for Bank Cimb and DCI Indonesia

-0.72

Correlation Coefficient

Bank Cimb  DCI Indonesia

Pay attention - limited upside

The 3 months correlation between Bank and DCI is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Bank Cimb Niaga and DCI Indonesia Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCI Indonesia 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 DCI Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCI Indonesia Tbk has no effect on the direction of Bank Cimb i.e., Bank Cimb and DCI Indonesia go up and down completely randomly.

Pair Corralation between Bank Cimb and DCI Indonesia

Assuming the 90 days trading horizon Bank Cimb Niaga is expected to under-perform the DCI Indonesia. But the stock apears to be less risky and, when comparing its historical volatility, Bank Cimb Niaga is 7.39 times less risky than DCI Indonesia. The stock trades about -0.03 of its potential returns per unit of risk. The DCI Indonesia Tbk is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  4,210,000  in DCI Indonesia Tbk on December 28, 2024 and sell it today you would earn a total of  12,115,000  from holding DCI Indonesia Tbk or generate 287.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Bank Cimb Niaga  vs.  DCI Indonesia 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.

DCI Indonesia Tbk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DCI Indonesia Tbk are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, DCI Indonesia disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Cimb and DCI Indonesia

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

The idea behind Bank Cimb Niaga and DCI Indonesia 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.