Correlation Between BEL Small and IDX 30

Can any of the company-specific risk be diversified away by investing in both BEL Small and IDX 30 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 BEL Small and IDX 30 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BEL Small and IDX 30 Jakarta, you can compare the effects of market volatilities on BEL Small and IDX 30 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 BEL Small with a short position of IDX 30. Check out your portfolio center. Please also check ongoing floating volatility patterns of BEL Small and IDX 30.

Diversification Opportunities for BEL Small and IDX 30

0.89

Correlation Coefficient

BEL Small  IDX 30

Very poor diversification

The 3 months correlation between BEL and IDX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding BEL Small and IDX 30 Jakarta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDX 30 Jakarta and BEL Small 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 BEL Small are associated (or correlated) with IDX 30. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDX 30 Jakarta has no effect on the direction of BEL Small i.e., BEL Small and IDX 30 go up and down completely randomly.

Pair Corralation between BEL Small and IDX 30

Assuming the 90 days trading horizon BEL Small is expected to under-perform the IDX 30. But the index apears to be less risky and, when comparing its historical volatility, BEL Small is 1.65 times less risky than IDX 30. The index trades about -0.18 of its potential returns per unit of risk. The IDX 30 Jakarta is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  44,261  in IDX 30 Jakarta on September 1, 2024 and sell it today you would lose (388.00) from holding IDX 30 Jakarta or give up 0.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.92%
Values	Daily Returns

BEL Small  vs.  IDX 30 Jakarta

Pair Trading with BEL Small and IDX 30

The main advantage of trading using opposite BEL Small and IDX 30 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BEL Small position performs unexpectedly, IDX 30 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 IDX 30 will offset losses from the drop in IDX 30's long position.

The idea behind BEL Small and IDX 30 Jakarta 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.