Correlation Between Bank Negara and FFW

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

Diversification Opportunities for Bank Negara and FFW

-0.24

Correlation Coefficient

Bank Negara  FFW

Very good diversification

The 3 months correlation between Bank and FFW is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and FFW Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FFW Corporation 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 FFW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FFW Corporation has no effect on the direction of Bank Negara i.e., Bank Negara and FFW go up and down completely randomly.

Pair Corralation between Bank Negara and FFW

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the FFW. In addition to that, Bank Negara is 6.74 times more volatile than FFW Corporation. It trades about -0.01 of its total potential returns per unit of risk. FFW Corporation is currently generating about 0.03 per unit of volatility. If you would invest  3,950  in FFW Corporation on December 24, 2024 and sell it today you would earn a total of  50.00  from holding FFW Corporation or generate 1.27% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  FFW Corp.

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.

FFW Corporation

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FFW Corporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, FFW is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank Negara and FFW

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

The idea behind Bank Negara Indonesia and FFW Corporation 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.