Correlation Between Visa and Bank Rakyat

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

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

Diversification Opportunities for Visa and Bank Rakyat

-0.79

Correlation Coefficient

Visa  Bank Rakyat

Pay attention - limited upside

The 3 months correlation between Visa and Bank is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Bank Rakyat Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Rakyat Indonesia and Visa 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 Visa Class A are associated (or correlated) with Bank Rakyat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Rakyat Indonesia has no effect on the direction of Visa i.e., Visa and Bank Rakyat go up and down completely randomly.

Pair Corralation between Visa and Bank Rakyat

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.35 times more return on investment than Bank Rakyat. However, Visa Class A is 2.84 times less risky than Bank Rakyat. It trades about 0.08 of its potential returns per unit of risk. Bank Rakyat Indonesia is currently generating about -0.03 per unit of risk. If you would invest  21,128  in Visa Class A on September 1, 2024 and sell it today you would earn a total of  10,380  from holding Visa Class A or generate 49.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.56%
Values	Daily Returns

Visa Class A  vs.  Bank Rakyat Indonesia

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Bank Rakyat Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Rakyat Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Visa and Bank Rakyat

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

The idea behind Visa Class A and Bank Rakyat Indonesia 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.