Correlation Between Insurance Australia and BANK RAKYAT

Can any of the company-specific risk be diversified away by investing in both Insurance Australia 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 Insurance Australia and BANK RAKYAT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Insurance Australia Group and BANK RAKYAT IND, you can compare the effects of market volatilities on Insurance Australia 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 Insurance Australia with a short position of BANK RAKYAT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insurance Australia and BANK RAKYAT.

Diversification Opportunities for Insurance Australia and BANK RAKYAT

0.81

Correlation Coefficient

Insurance Australia  BANK RAKYAT

Very poor diversification

The 3 months correlation between Insurance and BANK is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and BANK RAKYAT IND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK RAKYAT IND and Insurance Australia 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 Insurance Australia Group 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 IND has no effect on the direction of Insurance Australia i.e., Insurance Australia and BANK RAKYAT go up and down completely randomly.

Pair Corralation between Insurance Australia and BANK RAKYAT

Assuming the 90 days horizon Insurance Australia Group is expected to under-perform the BANK RAKYAT. But the stock apears to be less risky and, when comparing its historical volatility, Insurance Australia Group is 2.33 times less risky than BANK RAKYAT. The stock trades about -0.06 of its potential returns per unit of risk. The BANK RAKYAT IND is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  22.00  in BANK RAKYAT IND on December 30, 2024 and sell it today you would lose (1.00) from holding BANK RAKYAT IND or give up 4.55% of portfolio value over 90 days.

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

Insurance Australia Group  vs.  BANK RAKYAT IND

Insurance Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

BANK RAKYAT IND

Risk-Adjusted Performance

Very Weak

Over the last 90 days BANK RAKYAT IND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, BANK RAKYAT is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Insurance Australia and BANK RAKYAT

The main advantage of trading using opposite Insurance Australia and BANK RAKYAT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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 Insurance Australia Group and BANK RAKYAT IND 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 Transaction History module to view history of all your transactions and understand their impact on performance.