Correlation Between Bank Rakyat and Trust Finance

Can any of the company-specific risk be diversified away by investing in both Bank Rakyat and Trust Finance 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 Trust Finance 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 Trust Finance Indonesia, you can compare the effects of market volatilities on Bank Rakyat and Trust Finance 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 Trust Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Rakyat and Trust Finance.

Diversification Opportunities for Bank Rakyat and Trust Finance

-0.38

Correlation Coefficient

Bank Rakyat  Trust Finance

Very good diversification

The 3 months correlation between Bank and Trust is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat Indonesia and Trust Finance Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trust Finance Indonesia 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 Trust Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trust Finance Indonesia has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Trust Finance go up and down completely randomly.

Pair Corralation between Bank Rakyat and Trust Finance

Assuming the 90 days trading horizon Bank Rakyat Indonesia is expected to under-perform the Trust Finance. But the stock apears to be less risky and, when comparing its historical volatility, Bank Rakyat Indonesia is 2.25 times less risky than Trust Finance. The stock trades about -0.14 of its potential returns per unit of risk. The Trust Finance Indonesia is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  43,600  in Trust Finance Indonesia on September 12, 2024 and sell it today you would earn a total of  18,400  from holding Trust Finance Indonesia or generate 42.2% return on investment over 90 days.

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

Bank Rakyat Indonesia  vs.  Trust Finance Indonesia

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.

Trust Finance Indonesia

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trust Finance Indonesia are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Trust Finance disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Rakyat and Trust Finance

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

The idea behind Bank Rakyat Indonesia and Trust Finance 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.