Correlation Between Bank Negara and Loyalty Ventures

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

Diversification Opportunities for Bank Negara and Loyalty Ventures

0.78

Correlation Coefficient

Bank Negara  Loyalty Ventures

Poor diversification

The 3 months correlation between Bank and Loyalty is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Loyalty Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loyalty Ventures 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 Loyalty Ventures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loyalty Ventures has no effect on the direction of Bank Negara i.e., Bank Negara and Loyalty Ventures go up and down completely randomly.

Pair Corralation between Bank Negara and Loyalty Ventures

Assuming the 90 days horizon Bank Negara Indonesia is expected to generate 0.15 times more return on investment than Loyalty Ventures. However, Bank Negara Indonesia is 6.73 times less risky than Loyalty Ventures. It trades about 0.03 of its potential returns per unit of risk. Loyalty Ventures is currently generating about -0.16 per unit of risk. If you would invest  1,385  in Bank Negara Indonesia on October 5, 2024 and sell it today you would lose (75.00) from holding Bank Negara Indonesia or give up 5.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	5.51%
Values	Daily Returns

Bank Negara Indonesia  vs.  Loyalty Ventures

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.

Loyalty Ventures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loyalty Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Loyalty Ventures is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bank Negara and Loyalty Ventures

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

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