Correlation Between BANK RAKYAT and Northland Power

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

By analyzing existing cross correlation between BANK RAKYAT IND and Northland Power, you can compare the effects of market volatilities on BANK RAKYAT and Northland Power 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 Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK RAKYAT and Northland Power.

Diversification Opportunities for BANK RAKYAT and Northland Power

0.84

Correlation Coefficient

BANK RAKYAT  Northland Power

Very poor diversification

The 3 months correlation between BANK and Northland is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding BANK RAKYAT IND and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 IND are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of BANK RAKYAT i.e., BANK RAKYAT and Northland Power go up and down completely randomly.

Pair Corralation between BANK RAKYAT and Northland Power

Assuming the 90 days trading horizon BANK RAKYAT IND is expected to generate 0.8 times more return on investment than Northland Power. However, BANK RAKYAT IND is 1.25 times less risky than Northland Power. It trades about -0.24 of its potential returns per unit of risk. Northland Power is currently generating about -0.41 per unit of risk. If you would invest  26.00  in BANK RAKYAT IND on October 4, 2024 and sell it today you would lose (2.00) from holding BANK RAKYAT IND or give up 7.69% of portfolio value over 90 days.

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

BANK RAKYAT IND  vs.  Northland Power

BANK RAKYAT IND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK RAKYAT IND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Northland Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northland Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BANK RAKYAT and Northland Power

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

The idea behind BANK RAKYAT IND and Northland Power 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.