Correlation Between Bank Negara and Brother Industries

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

Diversification Opportunities for Bank Negara and Brother Industries

-0.42

Correlation Coefficient

Bank Negara  Brother Industries

Very good diversification

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

Pair Corralation between Bank Negara and Brother Industries

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Brother Industries. In addition to that, Bank Negara is 1.66 times more volatile than Brother Industries. It trades about -0.09 of its total potential returns per unit of risk. Brother Industries is currently generating about 0.16 per unit of volatility. If you would invest  1,789  in Brother Industries on September 17, 2024 and sell it today you would earn a total of  161.00  from holding Brother Industries or generate 9.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Bank Negara Indonesia  vs.  Brother Industries

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 weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brother Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank Negara and Brother Industries

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

The idea behind Bank Negara Indonesia and Brother Industries 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.