Correlation Between Bank Negara and PT Bank

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

Diversification Opportunities for Bank Negara and PT Bank

0.11

Correlation Coefficient

Bank Negara  PT Bank

Average diversification

The 3 months correlation between Bank and BKRKF is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat 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 PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of Bank Negara i.e., Bank Negara and PT Bank go up and down completely randomly.

Pair Corralation between Bank Negara and PT Bank

Assuming the 90 days horizon Bank Negara is expected to generate 6.3 times less return on investment than PT Bank. But when comparing it to its historical volatility, Bank Negara Indonesia is 1.63 times less risky than PT Bank. It trades about 0.01 of its potential returns per unit of risk. PT Bank Rakyat is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  23.00  in PT Bank Rakyat on December 27, 2024 and sell it today you would lose (2.00) from holding PT Bank Rakyat or give up 8.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

Bank Negara Indonesia  vs.  PT Bank Rakyat

Bank Negara Indonesia

Risk-Adjusted Performance

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 latest stock price disturbance, may contribute to short-term losses for the investors.

PT Bank Rakyat

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bank Rakyat are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, PT Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and PT Bank

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

The idea behind Bank Negara Indonesia and PT Bank Rakyat 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.