Correlation Between Bank Central and Federal Home

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

By analyzing existing cross correlation between Bank Central Asia and Federal Home Loan, you can compare the effects of market volatilities on Bank Central and Federal Home 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 Central with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Central and Federal Home.

Diversification Opportunities for Bank Central and Federal Home

-0.8

Correlation Coefficient

Bank Central  Federal Home

Pay attention - limited upside

The 3 months correlation between Bank and Federal is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and Bank Central 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 Central Asia are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Bank Central i.e., Bank Central and Federal Home go up and down completely randomly.

Pair Corralation between Bank Central and Federal Home

Assuming the 90 days horizon Bank Central Asia is expected to under-perform the Federal Home. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Central Asia is 11.6 times less risky than Federal Home. The pink sheet trades about -0.24 of its potential returns per unit of risk. The Federal Home Loan is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  698.00  in Federal Home Loan on September 3, 2024 and sell it today you would earn a total of  852.00  from holding Federal Home Loan or generate 122.06% return on investment over 90 days.

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

Bank Central Asia  vs.  Federal Home Loan

Bank Central Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank Central is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Federal Home Loan

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Home Loan are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental indicators, Federal Home reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Central and Federal Home

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

The idea behind Bank Central Asia and Federal Home Loan 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.