Correlation Between X FAB and PT Bank

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

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

Diversification Opportunities for X FAB and PT Bank

0.25

Correlation Coefficient

X FAB  PT Bank

Modest diversification

The 3 months correlation between XFB and PQ9 is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and PT Bank Mandiri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Bank Mandiri and X FAB 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 X FAB Silicon Foundries 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 Mandiri has no effect on the direction of X FAB i.e., X FAB and PT Bank go up and down completely randomly.

Pair Corralation between X FAB and PT Bank

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the PT Bank. But the stock apears to be less risky and, when comparing its historical volatility, X FAB Silicon Foundries is 1.92 times less risky than PT Bank. The stock trades about -0.02 of its potential returns per unit of risk. The PT Bank Mandiri is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  27.00  in PT Bank Mandiri on October 4, 2024 and sell it today you would earn a total of  9.00  from holding PT Bank Mandiri or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

X FAB Silicon Foundries  vs.  PT Bank Mandiri

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PT Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with X FAB and PT Bank

The main advantage of trading using opposite X FAB and PT Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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 X FAB Silicon Foundries and PT Bank Mandiri 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.