Correlation Between Bank Negara and PharmChem

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

Diversification Opportunities for Bank Negara and PharmChem

0.76

Correlation Coefficient

Bank Negara  PharmChem

Poor diversification

The 3 months correlation between Bank and PharmChem is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and PharmChem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PharmChem 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 PharmChem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PharmChem has no effect on the direction of Bank Negara i.e., Bank Negara and PharmChem go up and down completely randomly.

Pair Corralation between Bank Negara and PharmChem

Assuming the 90 days horizon Bank Negara is expected to generate 2.14 times less return on investment than PharmChem. But when comparing it to its historical volatility, Bank Negara Indonesia is 1.1 times less risky than PharmChem. It trades about 0.03 of its potential returns per unit of risk. PharmChem is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  174.00  in PharmChem on September 24, 2024 and sell it today you would earn a total of  131.00  from holding PharmChem or generate 75.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Bank Negara Indonesia  vs.  PharmChem

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.

PharmChem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Bank Negara and PharmChem

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

The idea behind Bank Negara Indonesia and PharmChem 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.