Correlation Between Itau Unibanco and Bank Rakyat

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

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

Diversification Opportunities for Itau Unibanco and Bank Rakyat

0.88

Correlation Coefficient

Itau Unibanco  Bank Rakyat

Very poor diversification

The 3 months correlation between Itau and Bank is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Itau Unibanco Banco and Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Rakyat and Itau Unibanco 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 Itau Unibanco Banco are associated (or correlated) with Bank Rakyat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Rakyat has no effect on the direction of Itau Unibanco i.e., Itau Unibanco and Bank Rakyat go up and down completely randomly.

Pair Corralation between Itau Unibanco and Bank Rakyat

Given the investment horizon of 90 days Itau Unibanco Banco is expected to under-perform the Bank Rakyat. In addition to that, Itau Unibanco is 1.52 times more volatile than Bank Rakyat. It trades about -0.26 of its total potential returns per unit of risk. Bank Rakyat is currently generating about -0.23 per unit of volatility. If you would invest  1,357  in Bank Rakyat on September 23, 2024 and sell it today you would lose (107.00) from holding Bank Rakyat or give up 7.89% of portfolio value over 90 days.

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

Itau Unibanco Banco  vs.  Bank Rakyat

Itau Unibanco Banco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itau Unibanco Banco 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 somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Itau Unibanco and Bank Rakyat

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

The idea behind Itau Unibanco Banco and 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.