Correlation Between Bank Central and Brother Industries

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

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

Diversification Opportunities for Bank Central and Brother Industries

0.86

Correlation Coefficient

Bank Central  Brother Industries

Very poor diversification

The 3 months correlation between Bank and Brother is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and Brother Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries and Bank Central 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 Bank Central Asia are associated (or correlated) with Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of Bank Central i.e., Bank Central and Brother Industries go up and down completely randomly.

Pair Corralation between Bank Central and Brother Industries

Assuming the 90 days horizon Bank Central is expected to generate 4.29 times less return on investment than Brother Industries. But when comparing it to its historical volatility, Bank Central Asia is 1.17 times less risky than Brother Industries. It trades about 0.09 of its potential returns per unit of risk. Brother Industries is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  1,605  in Brother Industries on October 20, 2024 and sell it today you would earn a total of  235.00  from holding Brother Industries or generate 14.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	90.91%
Values	Daily Returns

Bank Central Asia  vs.  Brother Industries

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bank Central and Brother Industries

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

The idea behind Bank Central Asia and Brother Industries 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.