Correlation Between Bank Negara and RCABS

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

Diversification Opportunities for Bank Negara and RCABS

0.42

Correlation Coefficient

Bank Negara  RCABS

Very weak diversification

The 3 months correlation between Bank and RCABS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and RCABS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCABS Inc 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 RCABS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCABS Inc has no effect on the direction of Bank Negara i.e., Bank Negara and RCABS go up and down completely randomly.

Pair Corralation between Bank Negara and RCABS

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the RCABS. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Negara Indonesia is 1.98 times less risky than RCABS. The pink sheet trades about -0.02 of its potential returns per unit of risk. The RCABS Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.07  in RCABS Inc on December 1, 2024 and sell it today you would lose (0.01) from holding RCABS Inc or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Bank Negara Indonesia  vs.  RCABS Inc

Bank Negara Indonesia

Risk-Adjusted Performance

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 latest unsteady 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.

RCABS Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RCABS Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RCABS sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and RCABS

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

The idea behind Bank Negara Indonesia and RCABS Inc 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.