Correlation Between Bank Rakyat and Arch Therapeutics

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

By analyzing existing cross correlation between Bank Rakyat and Arch Therapeutics, you can compare the effects of market volatilities on Bank Rakyat and Arch Therapeutics 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 Arch Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Rakyat and Arch Therapeutics.

Diversification Opportunities for Bank Rakyat and Arch Therapeutics

0.73

Correlation Coefficient

Bank Rakyat  Arch Therapeutics

Poor diversification

The 3 months correlation between Bank and Arch is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and Arch Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arch Therapeutics 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 are associated (or correlated) with Arch Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arch Therapeutics has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Arch Therapeutics go up and down completely randomly.

Pair Corralation between Bank Rakyat and Arch Therapeutics

Assuming the 90 days horizon Bank Rakyat is expected to under-perform the Arch Therapeutics. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Rakyat is 10.61 times less risky than Arch Therapeutics. The pink sheet trades about -0.18 of its potential returns per unit of risk. The Arch Therapeutics is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Arch Therapeutics on September 4, 2024 and sell it today you would lose (31.00) from holding Arch Therapeutics or give up 60.78% of portfolio value over 90 days.

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

Bank Rakyat  vs.  Arch Therapeutics

Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Rakyat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Arch Therapeutics

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arch Therapeutics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Arch Therapeutics demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Rakyat and Arch Therapeutics

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

The idea behind Bank Rakyat and Arch Therapeutics 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.