Correlation Between Bank Central and Bayan Resources

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

By analyzing existing cross correlation between Bank Central Asia and Bayan Resources Tbk, you can compare the effects of market volatilities on Bank Central and Bayan Resources 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 Central with a short position of Bayan Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Central and Bayan Resources.

Diversification Opportunities for Bank Central and Bayan Resources

-0.66

Correlation Coefficient

Bank Central  Bayan Resources

Excellent diversification

The 3 months correlation between Bank and Bayan is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and Bayan Resources Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayan Resources Tbk and Bank Central 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 Central Asia are associated (or correlated) with Bayan Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayan Resources Tbk has no effect on the direction of Bank Central i.e., Bank Central and Bayan Resources go up and down completely randomly.

Pair Corralation between Bank Central and Bayan Resources

Assuming the 90 days trading horizon Bank Central Asia is expected to under-perform the Bayan Resources. But the stock apears to be less risky and, when comparing its historical volatility, Bank Central Asia is 1.04 times less risky than Bayan Resources. The stock trades about -0.05 of its potential returns per unit of risk. The Bayan Resources Tbk is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,677,500  in Bayan Resources Tbk on September 4, 2024 and sell it today you would earn a total of  282,500  from holding Bayan Resources Tbk or generate 16.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Bank Central Asia  vs.  Bayan Resources Tbk

Bank Central Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Bank Central is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Bayan Resources Tbk

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bayan Resources Tbk are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bayan Resources disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Central and Bayan Resources

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

The idea behind Bank Central Asia and Bayan Resources Tbk 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.