Correlation Between Bank Negara and Western Energy

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

Diversification Opportunities for Bank Negara and Western Energy

0.49

Correlation Coefficient

Bank Negara  Western Energy

Very weak diversification

The 3 months correlation between Bank and Western is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Western Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Energy Services 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 Western Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Energy Services has no effect on the direction of Bank Negara i.e., Bank Negara and Western Energy go up and down completely randomly.

Pair Corralation between Bank Negara and Western Energy

Assuming the 90 days horizon Bank Negara Indonesia is expected to generate 1.7 times more return on investment than Western Energy. However, Bank Negara is 1.7 times more volatile than Western Energy Services. It trades about 0.01 of its potential returns per unit of risk. Western Energy Services is currently generating about -0.1 per unit of risk. If you would invest  1,324  in Bank Negara Indonesia on December 29, 2024 and sell it today you would lose (74.00) from holding Bank Negara Indonesia or give up 5.59% of portfolio value over 90 days.

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

Bank Negara Indonesia  vs.  Western Energy Services

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.

Western Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Energy Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Bank Negara and Western Energy

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

The idea behind Bank Negara Indonesia and Western Energy Services 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.