Correlation Between Bank Negara and Star Jets

Can any of the company-specific risk be diversified away by investing in both Bank Negara and Star Jets 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 Star Jets 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 Star Jets International, you can compare the effects of market volatilities on Bank Negara and Star Jets 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 Star Jets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Negara and Star Jets.

Diversification Opportunities for Bank Negara and Star Jets

-0.4

Correlation Coefficient

Bank Negara  Star Jets

Very good diversification

The 3 months correlation between Bank and Star is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Star Jets International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Jets International 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 Star Jets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Jets International has no effect on the direction of Bank Negara i.e., Bank Negara and Star Jets go up and down completely randomly.

Pair Corralation between Bank Negara and Star Jets

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Star Jets. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Negara Indonesia is 4.25 times less risky than Star Jets. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Star Jets International is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.65  in Star Jets International on September 3, 2024 and sell it today you would earn a total of  0.35  from holding Star Jets International or generate 21.21% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  Star Jets International

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 fairly strong basic indicators, Bank Negara is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Star Jets International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Star Jets International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Star Jets reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Negara and Star Jets

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

The idea behind Bank Negara Indonesia and Star Jets International 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.