Correlation Between Bank Rakyat and FKS Food

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

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

Diversification Opportunities for Bank Rakyat and FKS Food

0.8

Correlation Coefficient

Bank Rakyat  FKS Food

Very poor diversification

The 3 months correlation between Bank and FKS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat Indonesia and FKS Food Sejahtera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FKS Food Sejahtera and Bank Rakyat 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 Rakyat Indonesia are associated (or correlated) with FKS Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FKS Food Sejahtera has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and FKS Food go up and down completely randomly.

Pair Corralation between Bank Rakyat and FKS Food

Assuming the 90 days trading horizon Bank Rakyat Indonesia is expected to under-perform the FKS Food. In addition to that, Bank Rakyat is 1.39 times more volatile than FKS Food Sejahtera. It trades about -0.21 of its total potential returns per unit of risk. FKS Food Sejahtera is currently generating about -0.15 per unit of volatility. If you would invest  12,800  in FKS Food Sejahtera on September 18, 2024 and sell it today you would lose (1,500) from holding FKS Food Sejahtera or give up 11.72% of portfolio value over 90 days.

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

Bank Rakyat Indonesia  vs.  FKS Food Sejahtera

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 weak performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

FKS Food Sejahtera

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FKS Food Sejahtera has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Bank Rakyat and FKS Food

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

The idea behind Bank Rakyat Indonesia and FKS Food Sejahtera 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.