Correlation Between PT Steel and PT Bank

Can any of the company-specific risk be diversified away by investing in both PT Steel and PT Bank 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 PT Steel and PT Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PT Steel Pipe and PT Bank Rakyat, you can compare the effects of market volatilities on PT Steel and PT Bank 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 PT Steel with a short position of PT Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Steel and PT Bank.

Diversification Opportunities for PT Steel and PT Bank

0.78

Correlation Coefficient

PT Steel  PT Bank

Poor diversification

The 3 months correlation between S08 and BYRA is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding PT Steel Pipe and PT Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Rakyat and PT Steel 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 PT Steel Pipe are associated (or correlated) with PT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Bank Rakyat has no effect on the direction of PT Steel i.e., PT Steel and PT Bank go up and down completely randomly.

Pair Corralation between PT Steel and PT Bank

Assuming the 90 days horizon PT Steel Pipe is expected to generate 1.33 times more return on investment than PT Bank. However, PT Steel is 1.33 times more volatile than PT Bank Rakyat. It trades about 0.03 of its potential returns per unit of risk. PT Bank Rakyat is currently generating about 0.0 per unit of risk. If you would invest  1.50  in PT Steel Pipe on October 9, 2024 and sell it today you would lose (0.05) from holding PT Steel Pipe or give up 3.33% of portfolio value over 90 days.

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

PT Steel Pipe  vs.  PT Bank Rakyat

PT Steel Pipe

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Steel Pipe are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Steel reported solid returns over the last few months and may actually be approaching a breakup point.

PT Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with PT Steel and PT Bank

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

The idea behind PT Steel Pipe and PT Bank Rakyat 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.