Correlation Between Bank Mandiri and Central Japan

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

Diversification Opportunities for Bank Mandiri and Central Japan

0.81

Correlation Coefficient

Bank Mandiri  Central Japan

Very poor diversification

The 3 months correlation between Bank and Central is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Bank Mandiri Persero and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Bank Mandiri i.e., Bank Mandiri and Central Japan go up and down completely randomly.

Pair Corralation between Bank Mandiri and Central Japan

Assuming the 90 days horizon Bank Mandiri Persero is expected to under-perform the Central Japan. In addition to that, Bank Mandiri is 1.56 times more volatile than Central Japan Railway. It trades about -0.11 of its total potential returns per unit of risk. Central Japan Railway is currently generating about -0.13 per unit of volatility. If you would invest  1,139  in Central Japan Railway on September 2, 2024 and sell it today you would lose (114.00) from holding Central Japan Railway or give up 10.01% 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.  Central Japan Railway

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. 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.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Japan Railway 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.

Pair Trading with Bank Mandiri and Central Japan

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

The idea behind Bank Mandiri Persero and Central Japan Railway 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.