Correlation Between Bank Negara and Exchange Bank

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

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

Diversification Opportunities for Bank Negara and Exchange Bank

-0.34

Correlation Coefficient

Bank Negara  Exchange Bank

Very good diversification

The 3 months correlation between Bank and Exchange is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Exchange Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bank and Bank Negara 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 Negara Indonesia are associated (or correlated) with Exchange Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bank has no effect on the direction of Bank Negara i.e., Bank Negara and Exchange Bank go up and down completely randomly.

Pair Corralation between Bank Negara and Exchange Bank

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Exchange Bank. In addition to that, Bank Negara is 2.74 times more volatile than Exchange Bank. It trades about -0.03 of its total potential returns per unit of risk. Exchange Bank is currently generating about 0.07 per unit of volatility. If you would invest  10,671  in Exchange Bank on September 14, 2024 and sell it today you would earn a total of  721.00  from holding Exchange Bank or generate 6.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Bank Negara Indonesia  vs.  Exchange Bank

Bank Negara Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Negara Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Exchange Bank

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Exchange Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank Negara and Exchange Bank

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

The idea behind Bank Negara Indonesia and Exchange 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.