Correlation Between PT Bank and First Community

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

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

Diversification Opportunities for PT Bank and First Community

-0.01

Correlation Coefficient

PT Bank  First Community

Good diversification

The 3 months correlation between BKRKF and First is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and PT Bank 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 PT Bank Rakyat are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of PT Bank i.e., PT Bank and First Community go up and down completely randomly.

Pair Corralation between PT Bank and First Community

Assuming the 90 days horizon PT Bank Rakyat is expected to generate 37.49 times more return on investment than First Community. However, PT Bank is 37.49 times more volatile than First Community. It trades about 0.0 of its potential returns per unit of risk. First Community is currently generating about -0.06 per unit of risk. If you would invest  32.00  in PT Bank Rakyat on September 12, 2024 and sell it today you would lose (3.00) from holding PT Bank Rakyat or give up 9.38% of portfolio value over 90 days.

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

PT Bank Rakyat  vs.  First Community

PT Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Community

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, First Community is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PT Bank and First Community

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

The idea behind PT Bank Rakyat and First Community 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.