Correlation Between PT Bank and Bank Central

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

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

Diversification Opportunities for PT Bank and Bank Central

0.7

Correlation Coefficient

PT Bank  Bank Central

Poor diversification

The 3 months correlation between PBCRF and Bank is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Central and Bank Central Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Central Asia and PT Bank 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 PT Bank Central are associated (or correlated) with Bank Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Central Asia has no effect on the direction of PT Bank i.e., PT Bank and Bank Central go up and down completely randomly.

Pair Corralation between PT Bank and Bank Central

Assuming the 90 days horizon PT Bank Central is expected to under-perform the Bank Central. In addition to that, PT Bank is 2.55 times more volatile than Bank Central Asia. It trades about -0.02 of its total potential returns per unit of risk. Bank Central Asia is currently generating about -0.06 per unit of volatility. If you would invest  1,658  in Bank Central Asia on August 30, 2024 and sell it today you would lose (108.00) from holding Bank Central Asia or give up 6.51% of portfolio value over 90 days.

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

PT Bank Central  vs.  Bank Central Asia

PT Bank Central

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Central has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PT Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Bank Central Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank Central is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PT Bank and Bank Central

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

The idea behind PT Bank Central and Bank Central Asia 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.