Correlation Between Bank Negara and Pharma Bio

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

Diversification Opportunities for Bank Negara and Pharma Bio

0.68

Correlation Coefficient

Bank Negara  Pharma Bio

Poor diversification

The 3 months correlation between Bank and Pharma is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Pharma Bio Serv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pharma Bio Serv 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 Pharma Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pharma Bio Serv has no effect on the direction of Bank Negara i.e., Bank Negara and Pharma Bio go up and down completely randomly.

Pair Corralation between Bank Negara and Pharma Bio

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Pharma Bio. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bank Negara Indonesia is 1.38 times less risky than Pharma Bio. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Pharma Bio Serv is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  63.00  in Pharma Bio Serv on September 16, 2024 and sell it today you would lose (8.00) from holding Pharma Bio Serv or give up 12.7% of portfolio value over 90 days.

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

Bank Negara Indonesia  vs.  Pharma Bio Serv

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 weak 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.

Pharma Bio Serv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pharma Bio Serv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pharma Bio is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bank Negara and Pharma Bio

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

The idea behind Bank Negara Indonesia and Pharma Bio Serv 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.