Correlation Between Vale Indonesia and Bank Negara

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

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

Diversification Opportunities for Vale Indonesia and Bank Negara

0.44

Correlation Coefficient

Vale Indonesia  Bank Negara

Very weak diversification

The 3 months correlation between Vale and Bank is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Vale Indonesia Tbk 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 Vale Indonesia 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 Vale Indonesia Tbk 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 Vale Indonesia i.e., Vale Indonesia and Bank Negara go up and down completely randomly.

Pair Corralation between Vale Indonesia and Bank Negara

Assuming the 90 days trading horizon Vale Indonesia Tbk is expected to under-perform the Bank Negara. In addition to that, Vale Indonesia is 1.11 times more volatile than Bank Negara Indonesia. It trades about -0.19 of its total potential returns per unit of risk. Bank Negara Indonesia is currently generating about 0.0 per unit of volatility. If you would invest  435,000  in Bank Negara Indonesia on December 29, 2024 and sell it today you would lose (11,000) from holding Bank Negara Indonesia or give up 2.53% of portfolio value over 90 days.

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

Vale Indonesia Tbk  vs.  Bank Negara Indonesia

Vale Indonesia Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vale Indonesia Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 Vale Indonesia and Bank Negara

The main advantage of trading using opposite Vale Indonesia and Bank Negara positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale Indonesia 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 Vale Indonesia Tbk 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.