Correlation Between First Farmers and PT Bank

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

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

Diversification Opportunities for First Farmers and PT Bank

-0.19

Correlation Coefficient

First Farmers  PT Bank

Good diversification

The 3 months correlation between First and BKRKF is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding First Farmers Financial and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat and First Farmers 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 First Farmers Financial are associated (or correlated) with PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of First Farmers i.e., First Farmers and PT Bank go up and down completely randomly.

Pair Corralation between First Farmers and PT Bank

Given the investment horizon of 90 days First Farmers Financial is expected to generate 0.06 times more return on investment than PT Bank. However, First Farmers Financial is 16.78 times less risky than PT Bank. It trades about 0.4 of its potential returns per unit of risk. PT Bank Rakyat is currently generating about -0.01 per unit of risk. If you would invest  6,450  in First Farmers Financial on September 15, 2024 and sell it today you would earn a total of  249.00  from holding First Farmers Financial or generate 3.86% return on investment over 90 days.

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

First Farmers Financial  vs.  PT Bank Rakyat

First Farmers Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Farmers Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, First Farmers is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

PT Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with First Farmers and PT Bank

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

The idea behind First Farmers Financial and PT Bank Rakyat 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.