Correlation Between PT Bank and TFS FINANCIAL

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

By analyzing existing cross correlation between PT Bank CIMB and TFS FINANCIAL, you can compare the effects of market volatilities on PT Bank and TFS FINANCIAL 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 TFS FINANCIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of PT Bank and TFS FINANCIAL.

Diversification Opportunities for PT Bank and TFS FINANCIAL

0.68

Correlation Coefficient

PT Bank  TFS FINANCIAL

Poor diversification

The 3 months correlation between NKX and TFS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank CIMB and TFS FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TFS FINANCIAL 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 CIMB are associated (or correlated) with TFS FINANCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TFS FINANCIAL has no effect on the direction of PT Bank i.e., PT Bank and TFS FINANCIAL go up and down completely randomly.

Pair Corralation between PT Bank and TFS FINANCIAL

Assuming the 90 days trading horizon PT Bank CIMB is expected to generate 0.76 times more return on investment than TFS FINANCIAL. However, PT Bank CIMB is 1.32 times less risky than TFS FINANCIAL. It trades about 0.16 of its potential returns per unit of risk. TFS FINANCIAL is currently generating about 0.01 per unit of risk. If you would invest  7.99  in PT Bank CIMB on March 7, 2025 and sell it today you would earn a total of  1.11  from holding PT Bank CIMB or generate 13.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

PT Bank CIMB  vs.  TFS FINANCIAL

PT Bank CIMB

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PT Bank CIMB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, PT Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

TFS FINANCIAL

Risk-Adjusted Performance

Very Weak

Over the last 90 days TFS FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, TFS FINANCIAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PT Bank and TFS FINANCIAL

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

The idea behind PT Bank CIMB and TFS FINANCIAL 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.