Correlation Between Buana Finance and Equity Development

Can any of the company-specific risk be diversified away by investing in both Buana Finance and Equity Development 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 Buana Finance and Equity Development into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Buana Finance Tbk and Equity Development Investment, you can compare the effects of market volatilities on Buana Finance and Equity Development 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 Buana Finance with a short position of Equity Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Buana Finance and Equity Development.

Diversification Opportunities for Buana Finance and Equity Development

0.63

Correlation Coefficient

Buana Finance  Equity Development

Poor diversification

The 3 months correlation between Buana and Equity is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Buana Finance Tbk and Equity Development Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Development and Buana Finance 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 Buana Finance Tbk are associated (or correlated) with Equity Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Development has no effect on the direction of Buana Finance i.e., Buana Finance and Equity Development go up and down completely randomly.

Pair Corralation between Buana Finance and Equity Development

Assuming the 90 days trading horizon Buana Finance Tbk is expected to generate 1.58 times more return on investment than Equity Development. However, Buana Finance is 1.58 times more volatile than Equity Development Investment. It trades about -0.03 of its potential returns per unit of risk. Equity Development Investment is currently generating about -0.13 per unit of risk. If you would invest  64,500  in Buana Finance Tbk on December 1, 2024 and sell it today you would lose (3,500) from holding Buana Finance Tbk or give up 5.43% of portfolio value over 90 days.

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

Buana Finance Tbk  vs.  Equity Development Investment

Buana Finance Tbk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Buana Finance Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Buana Finance is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Equity Development

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Development Investment 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.

Pair Trading with Buana Finance and Equity Development

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

The idea behind Buana Finance Tbk and Equity Development Investment 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.