Correlation Between PT Bank and PharmChem

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

Diversification Opportunities for PT Bank and PharmChem

0.63

Correlation Coefficient

PT Bank  PharmChem

Poor diversification

The 3 months correlation between BKRKF and PharmChem is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and PharmChem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PharmChem 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 PharmChem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PharmChem has no effect on the direction of PT Bank i.e., PT Bank and PharmChem go up and down completely randomly.

Pair Corralation between PT Bank and PharmChem

Assuming the 90 days horizon PT Bank Rakyat is expected to under-perform the PharmChem. In addition to that, PT Bank is 2.87 times more volatile than PharmChem. It trades about -0.04 of its total potential returns per unit of risk. PharmChem is currently generating about -0.06 per unit of volatility. If you would invest  337.00  in PharmChem on September 24, 2024 and sell it today you would lose (32.00) from holding PharmChem or give up 9.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

PT Bank Rakyat  vs.  PharmChem

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 unsteady performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PharmChem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with PT Bank and PharmChem

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

The idea behind PT Bank Rakyat and PharmChem 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.