Correlation Between Bank Negara and Gold

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

Diversification Opportunities for Bank Negara and Gold

0.54

Correlation Coefficient

Bank Negara  Gold

Very weak diversification

The 3 months correlation between Bank and Gold is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Gold And Gemstone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold And Gemstone 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 Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold And Gemstone has no effect on the direction of Bank Negara i.e., Bank Negara and Gold go up and down completely randomly.

Pair Corralation between Bank Negara and Gold

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Gold. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Negara Indonesia is 3.76 times less risky than Gold. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Gold And Gemstone is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.05  in Gold And Gemstone on October 15, 2024 and sell it today you would earn a total of  0.01  from holding Gold And Gemstone or generate 20.0% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  Gold And Gemstone

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

Gold And Gemstone

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gold And Gemstone are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Gold displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and Gold

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

The idea behind Bank Negara Indonesia and Gold And Gemstone 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.