Correlation Between Bank Negara and CCFNB Bancorp

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

Diversification Opportunities for Bank Negara and CCFNB Bancorp

0.48

Correlation Coefficient

Bank Negara  CCFNB Bancorp

Very weak diversification

The 3 months correlation between Bank and CCFNB is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and CCFNB Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CCFNB Bancorp 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 CCFNB Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CCFNB Bancorp has no effect on the direction of Bank Negara i.e., Bank Negara and CCFNB Bancorp go up and down completely randomly.

Pair Corralation between Bank Negara and CCFNB Bancorp

Assuming the 90 days horizon Bank Negara Indonesia is expected to generate 3.5 times more return on investment than CCFNB Bancorp. However, Bank Negara is 3.5 times more volatile than CCFNB Bancorp. It trades about 0.01 of its potential returns per unit of risk. CCFNB Bancorp is currently generating about 0.03 per unit of risk. If you would invest  1,302  in Bank Negara Indonesia on December 27, 2024 and sell it today you would lose (94.00) from holding Bank Negara Indonesia or give up 7.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Bank Negara Indonesia  vs.  CCFNB Bancorp

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 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.

CCFNB Bancorp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CCFNB Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, CCFNB Bancorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Bank Negara and CCFNB Bancorp

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

The idea behind Bank Negara Indonesia and CCFNB Bancorp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.