Correlation Between Bumi Serpong and Indocement Tunggal

Can any of the company-specific risk be diversified away by investing in both Bumi Serpong and Indocement Tunggal 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 Bumi Serpong and Indocement Tunggal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bumi Serpong Damai and Indocement Tunggal Prakarsa, you can compare the effects of market volatilities on Bumi Serpong and Indocement Tunggal 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 Bumi Serpong with a short position of Indocement Tunggal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bumi Serpong and Indocement Tunggal.

Diversification Opportunities for Bumi Serpong and Indocement Tunggal

0.68

Correlation Coefficient

Bumi Serpong  Indocement Tunggal

Poor diversification

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

Pair Corralation between Bumi Serpong and Indocement Tunggal

Assuming the 90 days trading horizon Bumi Serpong Damai is expected to generate 0.99 times more return on investment than Indocement Tunggal. However, Bumi Serpong Damai is 1.01 times less risky than Indocement Tunggal. It trades about -0.16 of its potential returns per unit of risk. Indocement Tunggal Prakarsa is currently generating about -0.38 per unit of risk. If you would invest  100,000  in Bumi Serpong Damai on November 29, 2024 and sell it today you would lose (14,500) from holding Bumi Serpong Damai or give up 14.5% of portfolio value over 90 days.

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

Bumi Serpong Damai  vs.  Indocement Tunggal Prakarsa

Bumi Serpong Damai

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bumi Serpong Damai 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 March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Indocement Tunggal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indocement Tunggal Prakarsa 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 March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Bumi Serpong and Indocement Tunggal

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

The idea behind Bumi Serpong Damai and Indocement Tunggal Prakarsa 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.