Correlation Between PT Bank and Aozora Bank

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

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

Diversification Opportunities for PT Bank and Aozora Bank

0.18

Correlation Coefficient

PT Bank  Aozora Bank

Average diversification

The 3 months correlation between BOZA and Aozora is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Maybank and Aozora Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aozora Bank 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 Maybank are associated (or correlated) with Aozora Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aozora Bank has no effect on the direction of PT Bank i.e., PT Bank and Aozora Bank go up and down completely randomly.

Pair Corralation between PT Bank and Aozora Bank

Assuming the 90 days trading horizon PT Bank Maybank is expected to generate 2.26 times more return on investment than Aozora Bank. However, PT Bank is 2.26 times more volatile than Aozora Bank. It trades about 0.01 of its potential returns per unit of risk. Aozora Bank is currently generating about -0.02 per unit of risk. If you would invest  1.25  in PT Bank Maybank on September 5, 2024 and sell it today you would lose (0.05) from holding PT Bank Maybank or give up 4.0% of portfolio value over 90 days.

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

PT Bank Maybank  vs.  Aozora Bank

PT Bank Maybank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Aozora Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PT Bank and Aozora Bank

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

The idea behind PT Bank Maybank and Aozora Bank 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.