Correlation Between Home Federal and Bank Rakyat

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

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

Diversification Opportunities for Home Federal and Bank Rakyat

0.79

Correlation Coefficient

Home Federal  Bank Rakyat

Poor diversification

The 3 months correlation between Home and Bank is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and Bank Rakyat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Rakyat and Home Federal 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 Home Federal Bancorp are associated (or correlated) with Bank Rakyat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Rakyat has no effect on the direction of Home Federal i.e., Home Federal and Bank Rakyat go up and down completely randomly.

Pair Corralation between Home Federal and Bank Rakyat

Given the investment horizon of 90 days Home Federal Bancorp is expected to under-perform the Bank Rakyat. In addition to that, Home Federal is 1.74 times more volatile than Bank Rakyat. It trades about -0.03 of its total potential returns per unit of risk. Bank Rakyat is currently generating about -0.03 per unit of volatility. If you would invest  1,679  in Bank Rakyat on February 21, 2024 and sell it today you would lose (136.00) from holding Bank Rakyat or give up 8.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.9%
Values	Daily Returns

Home Federal Bancorp  vs.  Bank Rakyat

Home Federal Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Federal Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Bank Rakyat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Rakyat 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 forward-looking signals remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Home Federal and Bank Rakyat

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

The idea behind Home Federal Bancorp and Bank Rakyat 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.