Correlation Between Bank Negara and Fremont Gold

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

Diversification Opportunities for Bank Negara and Fremont Gold

0.29

Correlation Coefficient

Bank Negara  Fremont Gold

Modest diversification

The 3 months correlation between Bank and Fremont is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Fremont Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fremont Gold 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 Fremont Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fremont Gold has no effect on the direction of Bank Negara i.e., Bank Negara and Fremont Gold go up and down completely randomly.

Pair Corralation between Bank Negara and Fremont Gold

Assuming the 90 days horizon Bank Negara is expected to generate 57.58 times less return on investment than Fremont Gold. But when comparing it to its historical volatility, Bank Negara Indonesia is 2.62 times less risky than Fremont Gold. It trades about 0.01 of its potential returns per unit of risk. Fremont Gold is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  4.80  in Fremont Gold on December 29, 2024 and sell it today you would earn a total of  4.50  from holding Fremont Gold or generate 93.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	32.79%
Values	Daily Returns

Bank Negara Indonesia  vs.  Fremont Gold

Bank Negara Indonesia

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Negara Indonesia are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Bank Negara is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fremont Gold

Risk-Adjusted Performance

Solid

Over the last 90 days Fremont Gold has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Fremont Gold reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and Fremont Gold

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

The idea behind Bank Negara Indonesia and Fremont Gold 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.