Correlation Between Bank Negara and Investec

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

Diversification Opportunities for Bank Negara and Investec

-0.54

Correlation Coefficient

Bank Negara  Investec

Excellent diversification

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

Pair Corralation between Bank Negara and Investec

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Investec. In addition to that, Bank Negara is 4.22 times more volatile than Investec Group. It trades about -0.23 of its total potential returns per unit of risk. Investec Group is currently generating about 0.22 per unit of volatility. If you would invest  1,062  in Investec Group on September 24, 2024 and sell it today you would earn a total of  42.00  from holding Investec Group or generate 3.95% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  Investec Group

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Investec Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking indicators, Investec is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank Negara and Investec

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

The idea behind Bank Negara Indonesia and Investec Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.