Correlation Between Multi Bintang and Bank Negara

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

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

Diversification Opportunities for Multi Bintang and Bank Negara

0.49

Correlation Coefficient

Multi Bintang  Bank Negara

Very weak diversification

The 3 months correlation between Multi and Bank is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Multi Bintang 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 Multi Bintang 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 Multi Bintang 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 Multi Bintang i.e., Multi Bintang and Bank Negara go up and down completely randomly.

Pair Corralation between Multi Bintang and Bank Negara

Assuming the 90 days trading horizon Multi Bintang Indonesia is expected to generate 0.35 times more return on investment than Bank Negara. However, Multi Bintang Indonesia is 2.85 times less risky than Bank Negara. It trades about -0.04 of its potential returns per unit of risk. Bank Negara Indonesia is currently generating about -0.08 per unit of risk. If you would invest  620,000  in Multi Bintang Indonesia on December 1, 2024 and sell it today you would lose (15,000) from holding Multi Bintang Indonesia or give up 2.42% of portfolio value over 90 days.

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

Multi Bintang Indonesia  vs.  Bank Negara Indonesia

Multi Bintang Indonesia

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Multi Bintang and Bank Negara

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

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.