Correlation Between Bank Rakyat and Parafin Corp
Can any of the company-specific risk be diversified away by investing in both Bank Rakyat and Parafin Corp 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 Parafin Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank Rakyat and Parafin Corp, you can compare the effects of market volatilities on Bank Rakyat and Parafin Corp 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 Parafin Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Rakyat and Parafin Corp.
Diversification Opportunities for Bank Rakyat and Parafin Corp
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bank and Parafin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank Rakyat and Parafin Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parafin Corp 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 are associated (or correlated) with Parafin Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parafin Corp has no effect on the direction of Bank Rakyat i.e., Bank Rakyat and Parafin Corp go up and down completely randomly.
Pair Corralation between Bank Rakyat and Parafin Corp
Assuming the 90 days horizon Bank Rakyat is expected to generate 11.38 times less return on investment than Parafin Corp. But when comparing it to its historical volatility, Bank Rakyat is 9.2 times less risky than Parafin Corp. It trades about 0.01 of its potential returns per unit of risk. Parafin Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 0.01 in Parafin Corp on August 28, 2024 and sell it today you would lose (0.01) from holding Parafin Corp or give up 100.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 94.96% |
| Values | Daily Returns |
Bank Rakyat vs. Parafin Corp
Performance |
| Timeline |
| Bank Rakyat |
| Parafin Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Bank Rakyat and Parafin Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank Rakyat and Parafin Corp
The main advantage of trading using opposite Bank Rakyat and Parafin Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Rakyat position performs unexpectedly, Parafin Corp 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 Parafin Corp will offset losses from the drop in Parafin Corp's long position.The idea behind Bank Rakyat and Parafin Corp 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.| Parafin Corp vs. Imperial Res | Parafin Corp vs. Strat Petroleum | Parafin Corp vs. Century Petroleum Corp |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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