Correlation Between Bank Central and Bank Negara

Can any of the company-specific risk be diversified away by investing in both Bank Central 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 Bank Central and Bank Negara 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 Bank Negara Indonesia, you can compare the effects of market volatilities on Bank Central 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 Bank Central with a short position of Bank Negara. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Central and Bank Negara.

Diversification Opportunities for Bank Central and Bank Negara

0.86

Correlation Coefficient

Bank Central  Bank Negara

Very poor diversification

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

Pair Corralation between Bank Central and Bank Negara

Assuming the 90 days horizon Bank Central is expected to generate 6.35 times less return on investment than Bank Negara. But when comparing it to its historical volatility, Bank Central Asia is 2.93 times less risky than Bank Negara. It trades about 0.03 of its potential returns per unit of risk. Bank Negara Indonesia is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,301  in Bank Negara Indonesia on October 24, 2024 and sell it today you would earn a total of  60.00  from holding Bank Negara Indonesia or generate 4.61% return on investment over 90 days.

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

Bank Central Asia  vs.  Bank Negara Indonesia

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company 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. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank Central and Bank Negara

The main advantage of trading using opposite Bank Central and Bank Negara positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Central 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 Bank Central Asia 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.