Correlation Between Bakrie Brothers and Elang Mahkota

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

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

Diversification Opportunities for Bakrie Brothers and Elang Mahkota

0.67

Correlation Coefficient

Bakrie Brothers  Elang Mahkota

Poor diversification

The 3 months correlation between Bakrie and Elang is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bakrie Brothers Tbk 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 Bakrie Brothers 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 Bakrie Brothers Tbk 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 Bakrie Brothers i.e., Bakrie Brothers and Elang Mahkota go up and down completely randomly.

Pair Corralation between Bakrie Brothers and Elang Mahkota

Assuming the 90 days trading horizon Bakrie Brothers Tbk is expected to generate 1.53 times more return on investment than Elang Mahkota. However, Bakrie Brothers is 1.53 times more volatile than Elang Mahkota Teknologi. It trades about 0.1 of its potential returns per unit of risk. Elang Mahkota Teknologi is currently generating about 0.09 per unit of risk. If you would invest  3,700  in Bakrie Brothers Tbk on August 31, 2024 and sell it today you would earn a total of  1,000.00  from holding Bakrie Brothers Tbk or generate 27.03% return on investment over 90 days.

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

Bakrie Brothers Tbk  vs.  Elang Mahkota Teknologi

Bakrie Brothers Tbk

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bakrie Brothers Tbk are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Bakrie Brothers disclosed solid returns over the last few months and may actually be approaching a breakup point.

Elang Mahkota Teknologi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elang Mahkota Teknologi are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Elang Mahkota disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bakrie Brothers and Elang Mahkota

The main advantage of trading using opposite Bakrie Brothers and Elang Mahkota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bakrie Brothers 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 Bakrie Brothers Tbk 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..