Correlation Between Bank Rakyat and Golden Flower

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

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

Diversification Opportunities for Bank Rakyat and Golden Flower

-0.12

Correlation Coefficient

Bank Rakyat  Golden Flower

Good diversification

The 3 months correlation between Bank and Golden is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat Indonesia and Golden Flower Tbk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golden Flower Tbk and Bank Rakyat 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 Rakyat Indonesia are associated (or correlated) with Golden Flower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golden Flower Tbk has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Golden Flower go up and down completely randomly.

Pair Corralation between Bank Rakyat and Golden Flower

Assuming the 90 days trading horizon Bank Rakyat is expected to generate 3.32 times less return on investment than Golden Flower. But when comparing it to its historical volatility, Bank Rakyat Indonesia is 5.03 times less risky than Golden Flower. It trades about 0.04 of its potential returns per unit of risk. Golden Flower Tbk is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  60,000  in Golden Flower Tbk on February 16, 2024 and sell it today you would lose (9,000) from holding Golden Flower Tbk or give up 15.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.78%
Values	Daily Returns

Bank Rakyat Indonesia  vs.  Golden Flower Tbk

Bank Rakyat Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Rakyat Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Golden Flower Tbk

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Golden Flower Tbk are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Golden Flower disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Rakyat and Golden Flower

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

The idea behind Bank Rakyat Indonesia and Golden Flower Tbk 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.