Correlation Between Lion Metal and Bank Negara

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

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

Diversification Opportunities for Lion Metal and Bank Negara

0.86

Correlation Coefficient

Lion Metal  Bank Negara

Very poor diversification

The 3 months correlation between Lion and Bank is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Lion Metal Works 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 Lion Metal 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 Lion Metal Works 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 Lion Metal i.e., Lion Metal and Bank Negara go up and down completely randomly.

Pair Corralation between Lion Metal and Bank Negara

Assuming the 90 days trading horizon Lion Metal Works is expected to under-perform the Bank Negara. In addition to that, Lion Metal is 2.03 times more volatile than Bank Negara Indonesia. It trades about -0.13 of its total potential returns per unit of risk. Bank Negara Indonesia is currently generating about -0.08 per unit of volatility. If you would invest  562,500  in Bank Negara Indonesia on September 13, 2024 and sell it today you would lose (52,500) from holding Bank Negara Indonesia or give up 9.33% of portfolio value over 90 days.

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

Lion Metal Works  vs.  Bank Negara Indonesia

Lion Metal Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion Metal Works 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 January 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

0 of 100

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 latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Lion Metal and Bank Negara

The main advantage of trading using opposite Lion Metal and Bank Negara positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lion Metal 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 Lion Metal Works 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.