Correlation Between Capital Financial and Bank Negara

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

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

Diversification Opportunities for Capital Financial and Bank Negara

-0.22

Correlation Coefficient

Capital Financial  Bank Negara

Very good diversification

The 3 months correlation between Capital and Bank is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Capital Financial Indonesia and Bank Negara Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Negara Indonesia and Capital Financial 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 Capital Financial Indonesia are associated (or correlated) with Bank Negara. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Negara Indonesia has no effect on the direction of Capital Financial i.e., Capital Financial and Bank Negara go up and down completely randomly.

Pair Corralation between Capital Financial and Bank Negara

Assuming the 90 days trading horizon Capital Financial Indonesia is expected to generate 0.72 times more return on investment than Bank Negara. However, Capital Financial Indonesia is 1.4 times less risky than Bank Negara. It trades about 0.22 of its potential returns per unit of risk. Bank Negara Indonesia is currently generating about 0.0 per unit of risk. If you would invest  56,500  in Capital Financial Indonesia on December 30, 2024 and sell it today you would earn a total of  19,500  from holding Capital Financial Indonesia or generate 34.51% return on investment over 90 days.

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

Capital Financial Indonesia  vs.  Bank Negara Indonesia

Capital Financial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Financial Indonesia are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Capital Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bank Negara Indonesia

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Capital Financial and Bank Negara

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

The idea behind Capital Financial Indonesia and Bank Negara Indonesia 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.