Correlation Between Bank Negara and Medical Marijuana

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

Diversification Opportunities for Bank Negara and Medical Marijuana

0.84

Correlation Coefficient

Bank Negara  Medical Marijuana

Very poor diversification

The 3 months correlation between Bank and Medical is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Medical Marijuana I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Marijuana 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 Medical Marijuana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Marijuana has no effect on the direction of Bank Negara i.e., Bank Negara and Medical Marijuana go up and down completely randomly.

Pair Corralation between Bank Negara and Medical Marijuana

Assuming the 90 days horizon Bank Negara Indonesia is expected to generate 0.38 times more return on investment than Medical Marijuana. However, Bank Negara Indonesia is 2.61 times less risky than Medical Marijuana. It trades about -0.09 of its potential returns per unit of risk. Medical Marijuana I is currently generating about -0.06 per unit of risk. If you would invest  1,901  in Bank Negara Indonesia on September 26, 2024 and sell it today you would lose (579.00) from holding Bank Negara Indonesia or give up 30.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Bank Negara Indonesia  vs.  Medical Marijuana I

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 unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Medical Marijuana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Marijuana I has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Bank Negara and Medical Marijuana

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

The idea behind Bank Negara Indonesia and Medical Marijuana I 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..