Correlation Between Bank Mandiri and First Northern

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

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

Diversification Opportunities for Bank Mandiri and First Northern

0.8

Correlation Coefficient

Bank Mandiri  First Northern

Very poor diversification

The 3 months correlation between Bank and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Mandiri Persero and First Northern Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Northern Community and Bank Mandiri 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 Mandiri Persero are associated (or correlated) with First Northern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Northern Community has no effect on the direction of Bank Mandiri i.e., Bank Mandiri and First Northern go up and down completely randomly.

Pair Corralation between Bank Mandiri and First Northern

Assuming the 90 days horizon Bank Mandiri Persero is expected to under-perform the First Northern. In addition to that, Bank Mandiri is 6.04 times more volatile than First Northern Community. It trades about -0.04 of its total potential returns per unit of risk. First Northern Community is currently generating about -0.11 per unit of volatility. If you would invest  1,038  in First Northern Community on September 13, 2024 and sell it today you would lose (49.00) from holding First Northern Community or give up 4.72% of portfolio value over 90 days.

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

Bank Mandiri Persero  vs.  First Northern Community

Bank Mandiri Persero

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Mandiri Persero has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

First Northern Community

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Northern Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Northern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bank Mandiri and First Northern

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

The idea behind Bank Mandiri Persero and First Northern Community 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.