Correlation Between Sumber Alfaria and Elang Mahkota

Can any of the company-specific risk be diversified away by investing in both Sumber Alfaria and Elang Mahkota 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 Sumber Alfaria and Elang Mahkota into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sumber Alfaria Trijaya and Elang Mahkota Teknologi, you can compare the effects of market volatilities on Sumber Alfaria and Elang Mahkota 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 Sumber Alfaria with a short position of Elang Mahkota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sumber Alfaria and Elang Mahkota.

Diversification Opportunities for Sumber Alfaria and Elang Mahkota

-0.19

Correlation Coefficient

Sumber Alfaria  Elang Mahkota

Good diversification

The 3 months correlation between Sumber and Elang is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Sumber Alfaria Trijaya and Elang Mahkota Teknologi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elang Mahkota Teknologi and Sumber Alfaria 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 Sumber Alfaria Trijaya are associated (or correlated) with Elang Mahkota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elang Mahkota Teknologi has no effect on the direction of Sumber Alfaria i.e., Sumber Alfaria and Elang Mahkota go up and down completely randomly.

Pair Corralation between Sumber Alfaria and Elang Mahkota

Assuming the 90 days trading horizon Sumber Alfaria Trijaya is expected to under-perform the Elang Mahkota. But the stock apears to be less risky and, when comparing its historical volatility, Sumber Alfaria Trijaya is 1.23 times less risky than Elang Mahkota. The stock trades about -0.31 of its potential returns per unit of risk. The Elang Mahkota Teknologi is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  57,500  in Elang Mahkota Teknologi on December 1, 2024 and sell it today you would lose (3,500) from holding Elang Mahkota Teknologi or give up 6.09% of portfolio value over 90 days.

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

Sumber Alfaria Trijaya  vs.  Elang Mahkota Teknologi

Sumber Alfaria Trijaya

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sumber Alfaria Trijaya 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 forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Elang Mahkota Teknologi

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Sumber Alfaria and Elang Mahkota

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

The idea behind Sumber Alfaria Trijaya and Elang Mahkota Teknologi 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.