Can any of the company-specific risk be diversified away by investing in both PT Bank and Shell PLC 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 PT Bank and Shell PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PT Bank Rakyat and Shell PLC, you can compare the effects of market volatilities on PT Bank and Shell PLC 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 PT Bank with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Bank and Shell PLC.
Diversification Opportunities for PT Bank and Shell PLC
The 3 months correlation between BKRKF and Shell is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Rakyat and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC and PT Bank 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 PT Bank Rakyat are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of PT Bank i.e., PT Bank and Shell PLC go up and down completely randomly.
Assuming the 90 days horizon PT Bank Rakyat is expected to generate 2.66 times more return on investment than Shell PLC. However, PT Bank is 2.66 times more volatile than Shell PLC. It trades about 0.03 of its potential returns per unit of risk. Shell PLC is currently generating about 0.04 per unit of risk. If you would invest 26.00 in PT Bank Rakyat on March 6, 2024 and sell it today you would lose (1.00) from holding PT Bank Rakyat or give up 3.85% of portfolio value over 90 days.
Over the last 90 days PT Bank Rakyat 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 forward-looking signals remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Shell PLC reported solid returns over the last few months and may actually be approaching a breakup point.