Correlation Between Bank Negara and Ashtead Group

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

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

Diversification Opportunities for Bank Negara and Ashtead Group

-0.41

Correlation Coefficient

Bank Negara  Ashtead Group

Very good diversification

The 3 months correlation between Bank and Ashtead is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Ashtead Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashtead Group plc and Bank Negara 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 Negara Indonesia are associated (or correlated) with Ashtead Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashtead Group plc has no effect on the direction of Bank Negara i.e., Bank Negara and Ashtead Group go up and down completely randomly.

Pair Corralation between Bank Negara and Ashtead Group

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Ashtead Group. In addition to that, Bank Negara is 2.64 times more volatile than Ashtead Group plc. It trades about -0.01 of its total potential returns per unit of risk. Ashtead Group plc is currently generating about 0.12 per unit of volatility. If you would invest  7,103  in Ashtead Group plc on September 3, 2024 and sell it today you would earn a total of  1,027  from holding Ashtead Group plc or generate 14.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Bank Negara Indonesia  vs.  Ashtead Group plc

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 fairly strong basic indicators, Bank Negara is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ashtead Group plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ashtead Group plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ashtead Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and Ashtead Group

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

The idea behind Bank Negara Indonesia and Ashtead Group plc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.