Correlation Between BANK RAKYAT and CHINA SOUTHN

Can any of the company-specific risk be diversified away by investing in both BANK RAKYAT and CHINA SOUTHN 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 CHINA SOUTHN 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 CHINA SOUTHN AIR H , you can compare the effects of market volatilities on BANK RAKYAT and CHINA SOUTHN 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 CHINA SOUTHN. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK RAKYAT and CHINA SOUTHN.

Diversification Opportunities for BANK RAKYAT and CHINA SOUTHN

-0.85

Correlation Coefficient

BANK RAKYAT  CHINA SOUTHN

Pay attention - limited upside

The 3 months correlation between BANK and CHINA is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding BANK RAKYAT IND and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR 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 CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of BANK RAKYAT i.e., BANK RAKYAT and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between BANK RAKYAT and CHINA SOUTHN

Assuming the 90 days trading horizon BANK RAKYAT IND is expected to generate 0.34 times more return on investment than CHINA SOUTHN. However, BANK RAKYAT IND is 2.9 times less risky than CHINA SOUTHN. It trades about 0.25 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about -0.07 per unit of risk. If you would invest  24.00  in BANK RAKYAT IND on October 8, 2024 and sell it today you would earn a total of  1.00  from holding BANK RAKYAT IND or generate 4.17% return on investment over 90 days.

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

BANK RAKYAT IND  vs.  CHINA SOUTHN AIR H

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 latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

CHINA SOUTHN AIR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BANK RAKYAT and CHINA SOUTHN

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

The idea behind BANK RAKYAT IND and CHINA SOUTHN AIR H 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.