Correlation Between PT Bank and Sompo Holdings

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

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

Diversification Opportunities for PT Bank and Sompo Holdings

-0.45

Correlation Coefficient

PT Bank  Sompo Holdings

Very good diversification

The 3 months correlation between PBCRF and Sompo is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Central and Sompo Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sompo Holdings 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 Central are associated (or correlated) with Sompo Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sompo Holdings has no effect on the direction of PT Bank i.e., PT Bank and Sompo Holdings go up and down completely randomly.

Pair Corralation between PT Bank and Sompo Holdings

Assuming the 90 days horizon PT Bank is expected to generate 68.39 times less return on investment than Sompo Holdings. But when comparing it to its historical volatility, PT Bank Central is 13.43 times less risky than Sompo Holdings. It trades about 0.03 of its potential returns per unit of risk. Sompo Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,065  in Sompo Holdings on September 16, 2024 and sell it today you would lose (1,562) from holding Sompo Holdings or give up 38.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	67.01%
Values	Daily Returns

PT Bank Central  vs.  Sompo Holdings

PT Bank Central

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Central 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.

Sompo Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sompo Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, Sompo Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PT Bank and Sompo Holdings

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

The idea behind PT Bank Central and Sompo Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.